Exercise 1914 Sweet Incs only temporary difference at the be

Exercise 19-14

Sweet Inc.’s only temporary difference at the beginning and end of 2016 is caused by a $3,270,000 deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2017 and 2018. The related deferred tax liability at the beginning of the year is $1,308,000. In the third quarter of 2016, a new tax rate of 34% is enacted into law and is scheduled to become effective for 2018. Taxable income for 2016 is $5,450,000, and taxable income is expected in all future years.

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Account Titles and Explanation

Debit

Credit

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Exercise 19-14 Sweet Inc.’s only temporary difference at the beginning and end of 2016 is caused by a $3,270,000 deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2017 and 2018. The related deferred tax liability at the beginning of the year is $1,308,000. In the third quarter of 2016, a new tax rate of 34% is enacted into law and is scheduled to become effective for 2018. Taxable income for 2016 is $5,450,000, and taxable income is expected in all future years.

Solution

1) Classification of deferred tax liablility :-

Calculation for Deferred tax liability :-

* 40% = ($1308000 / $3270000)

2) Journal Entry :-

3) Income Statement :-

Journal Entry :-