Exercise 191 Sweet Corporation has one temporary difference

Exercise 19-1 Sweet Corporation has one temporary difference at the end of 2017 that will reverse and cause taxable amounts of $53,300 in 2018, $58,600 in 2019, and $63,700 in 2020. Sweet\'s pretax financial income for 2017 is $281,200, and the tax rate is 40% for all years. There are no deferred taxes at the beginning of 2017. Compute taxable income and income taxes payable for 2017. Taxable income Income taxes payable g Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit Prepare the income tax expense section of the income statement for 2017, beginning with the line \"Income before income taxes.\". (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. Sweet Corporation Income Statement (Partial)

Solution

(a) Taxable Income = $       1,05,600 Taxes Payable = $           42,240 Workings: Pretax Book Income = $       2,81,200 Temporary Difference - 2018 = $         -53,300 Deffered Tax Liability Temporary Difference - 2019 = $         -58,600 Deffered Tax Liability Temporary Difference - 2020 = $         -63,700 Deffered Tax Liability Taxable Income = $       1,05,600 Tax Rate = 40% Taxes Payable = $           42,240 (b) Account Title and Explaination Debit Credit Tax Expense $ 1,12,480 Deffered Tax Liability $           70,240 Taxes payable $           42,240 Workings: Account of Temporary Difference Taxable (Deductible) Amount Enacted Tax Rate Current Deffered Tax (Asset) Liability Noncurrent Deffered Tax (Asset) Liability Temporary Difference - 2018 $     53,300 40% $                 21,320 Temporary Difference - 2019 $     58,600 40% $                   23,440 Temporary Difference - 2020 $     63,700 40% $                   25,480 Balance 2017 $                 21,320 $                   48,920 Balance 2016 $0 $0 Change $                 21,320 $                   48,920 Total Deffered Tax Liability = $21,320 + $48,920 = $                   70,240 (c) Sweet Corporation Income Statement Partial For the year Ended 2017 Income Before Income Taxes $       2,81,200 Income Tax Expense Deffered Tax Liability $     70,240 Taxes payable $     42,240 $       1,12,480 Net Income $       1,68,720