balance sheet reporting and tax rate change
At the end of 2015, Dolf Company prepared the following schedule of its deferred tax items (based on the currently enacted tax rate of 30%):
Deferred Tax Item # | Account Balance | Related Asset or Liability causing the deferred tax item |
| 1 | $ 8,400 debit | Current asset |
| 2 | 10,200 debit | Noncurrent asset |
| 3 | 5,700 credit | Current liability |
| 4 | 17,700 credit | Noncurrent liability |
On April 30, 2016, Congress changed the income tax rate to 40% for 2016 and future years. At the end of 2016, Dolf reported taxable income of $62,500 for 2016. At that time, Dolf determined that its deferred tax items should have balances as follows at the end of 2016 (based on the 40% tax rate): #1, $10,700 debit; #2, $15,000 debit; #3, $7,000 credit; #4, $25,900 credit.
Required:
| 1. | Show how the deferred tax items are reported on Dolf’s December 31, 2015, balance sheet. |
| 2. | Prepare the April 30, 2016, journal entry to correct Dolf’s deferred tax items. |
| 3. | Prepare Dolf’s income tax journal entry at the end of 2016. |
| 4. | Show how the current and deferred tax items are reported on Dolf’s December 31, 2016, balance sheet. |
| 5. | Calculate the total income tax expense for 2016. |
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