Question

The Deville Company reported pretax accounting income on its income statement as follows: 2021 2022 $395,000 315,000 385,000 425,000 2024 Included in the income of 2021 was an installment sale of property in the amount of $46,000. However, for tax purposes, DeVille reported the income in the year cash was collected, Cash collected on the installment sale was $18.400 in 2022. $23,000 in 2023. and $4,600 in 2024. Included in the 2023 income was $19,000 interest from investments in municipal governmental bonds. The enacted tax rate for 2021 and 2022 was 40%, but during 2022, new tax legislation was passed reducing the tax rate to 25% for the years 2023 and beyond. Required: Prepare the year-end Journal entries to record income taxes for the years 2021-2024. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record 2021 income Note: Enter debits before credits

Answer 1

Solution:

Computation of Taxable Income and Income Tax Payable
Particulars	2018	2019	2020	2021
Pretax accounting income	$3,95,000.00	$3,15,000.00	$3,85,000.00	$4,25,000.00
Less: Income from installment sale property	-$46,000.00	$0.00	$0.00	$0.00
Add: Collection of installment sales	$0.00	$18,400.00	$23,000.00	$4,600.00
Less: Interest on municipal bonds	$0.00	$0.00	-$19,000.00	$0.00
Taxable Income	$3,49,000.00	$3,33,400.00	$3,89,000.00	$4,29,600.00
Income Tax Payable	$1,04,700.00	$1,00,020.00	$97,250.00	$1,07,400.00
Computation of Deferred Tax
Particulars	2018	2019	2020	2021
Collection of installment sale as per tax return	$0.00	$18,400.00	$23,000.00	$4,600.00
Income from installment sales as per books	$46,000.00	$0.00	$0.00	$0.00
Taxable Temporary differences	$46,000.00	$0.00	$0.00	$0.00
Reversible Temporary differences		-$18,400.00	-$23,000.00	-$4,600.00
Deferred tax liability	$13,800.00
Reversal of Deferred tax liability 2022 = ($18,400*30% + $27,600*5%) 2020 - $23,000*25% 2021 - $4,600*25%		$6,900.00	$5,750.00	$1,150.00

Journal Entries - Deville Company
Year	Particulars	Debit	Credit
2018	Income Tax Expense Dr	$1,18,500.00
	To Income tax Payable		$1,04,700.00
	To Deferred tax liability		$13,800.00
	(To record income tax and deferred tax for 2018)
2019	Income Tax Expense Dr	$93,120.00
	Deferred tax liability Dr	$6,900.00
	To Income tax Payable		$1,00,020.00
	(To record income tax and deferred tax for 2019)
2020	Income Tax Expense Dr	$91,500.00
	Deferred tax liability Dr	$5,750.00
	To Income tax Payable		$97,250.00
	(To record income tax and deferred tax for 2020)
2021	Income Tax Expense Dr	$1,06,250.00
	Deferred tax liability Dr	$1,150.00
	To Income tax Payable		$1,07,400.00
	(To record income tax and deferred tax for 2021)