Question

19.7 (LO 1, 2, 4) (One Temporary Difference, Tracked 3 ye Rates, Income Statement Presentation) Crosley Corp. sold an Temporary Difference, Tracked 3 Years, Change in installment basis. The total gain of $60,000 was reported to resentation) Crosley Corp. sold an investment on an purposes in the period of sale. The company qualifies to use e total gain of $60,000 was reported for financial reporting method for tax purposes. The installment period is 3 y or sale. The company qualifies to use the installment-sales es. The installment period is 3 years, one-third of the sale price is period of sale. The tax rate was 40% in 2020, and 20% in 2021 and 2022. The 20% tax rate was not enacted in law until 2021. The ac and tax data for the 3 years is shown below. Financial Tax Accounting Return 2020 (40% tax rate) Income before temporary difference $ 70,000 $70,000 Temporary difference 60,000 20,000 Income $130,000 $90,000 2021 (20% tax rate) Income before temporary difference $ 70,000 $70,000 Temporary difference 20,000 Income $ 70,000 $90,000 2022 (20% tax rate) Income before temporary difference $ 70,000 $70,000 Temporary difference -0- 20,000 Income $ 70,000 $90,000 Instructions a. Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable at the end of each year. No deferred income taxes existed at the beginning of 2020. b. Explain how the deferred taxes will appear on the balance sheet at the end of each year. Draft the income tax expense section of the income statement for each year, beginning with "Income before income taxes."

Answer 1

Refer the below images for the above mentioned questions,in a detailed way of solution.

Solution & (a) Before deferred taxes can be computed, of comulative temporary difference Cristing - of each year must be computed: the at the amount end 2020 2021 2022 2022 particulars pretax financial income Paxable income Temporary difference $ 110000 90000 $ 70000 90000 700CD 90000 40000 (20000 (2000) Cumulative temporary at the beginning originating. sevexting) difference of the year 40000 20000 comulative at temporary the end of $ 20 000 difference the year & $40000 2020 $52000 Income tax expense Atc D To income taxes payable To Deferred tax liability *36000 16000 in Gaxable Enacted income for 2020 tax rate for 2020 $90000 * 461 36000 Current tax expense Prense for 2000 for 20

NO * Temporary Difference Toy Future Garable (Deductible) Amounty December 31, 2020 Deferred Gax (Asset) Liability Rate Installment Accounts $ 40000 404 Receivable $ 16000 @ Sax rate enacted for 2020. US Deferred Deferred Deferred tax tax tox $ 16000 $ -o- Kability at the end of 2020 trability at the beginning of 2020 expense for 2020 (Increase in deferred tax liability) 1666 Deferred corrent Sincome tax experse for 2020 dax expense for Poso tax expense for 2020 $ 16000 $36000 $. 2021 $ 9000 Deferred tax liability To Income tax (Being to record the decrease in Ale or $ 8000 expense Ale adjatment for the the enacted tax rate) $ 14000 Income Deferred & 4000 tax expense Alcar tax Irability Alc Dr to income toxer payable 118000

X cumulative temporary difference at end of 2020 $ 40000 Newly enacted tax rate for future years 2012 Adjusted balance of deferred tax liability at a and of 2020 2000 corrent balance of deferred tax kability Adjustment due to decrease in enacted tax rate (8000) Saxable income for 2021 490000 201. Enacted tax rate for 2021 current tax expense for 2021 Cincome faves parable) & 18000 16000 Temporay Difference Futore Garable (Deductible) Amounts December 31, 2021 Deferred Tax (Asset) Liability Date Installment Accounts $20000 207.b суроо Receivable b. Tax rote enacted for 2021 $4000 Deferred tax liability at the end of 2021 - De ferred tax liability at the beginning of 2021 after adjustment (1 16000 - $8000) 8000 DRA $ (4000) Deferred tax expensel benefit for 2021 corrent tax expense for 2021 Income tax expense for 2021 18000 GON 14000

VAL EN 2022 Income Deferred tax expense Al DV for liability All Dr TO Income taxes payable $ 14000 $ 4000 $ 18000 $ 90000 Taxable Enacted corrent income for 2022 tax rate for 2022 tar expense for 2022 $ 18000 Temporary Difference Tax Future Taxable (Deductible) Amounts Rate December 31 2022 Deferred Gax (Assest) Liability Installments Accounts Receivable 201 $-0- Deferred Deferred Deferrct tax liability at the end of 2022 tax liability at the beginning of 2022 tax benefit for 2022 (decrease in de ferred tax liability) $-o- $ 4000 $(4000) Deferred day benefit for 2022 corrent tax expense for 2022 Income tax expense for 2022 → $(4000) 18000 $ 14000

December 31, 2020 Non corrent liabilities & - Deferred tax liability * 16000 December 31, 2021 Non corrent - Deferred liabilities : tax kabilty $ 4000 December 31, 2022 tax liability to be reported at There is no deferred this date. 2020. taxes $ 130 000 Income before income Income tax expense: - Corrent - Deferred $36000 $ 16000 $($2000) $ 78000 Net income 2021: 70000 Income before income taxes & Income tax expense : - Corrent $ 18000 - Deferred &(4000) - Adjustment due to s (2000) decrease in tax rate . Net income → $ (6ooo) $64000

SUSAH 2022 Income before income Income tax expense : - Current taxes $ 70000 S - $ 18000 $ (4000) Deferred $(14000) $ 56000 Net income ON