Question

The following facts relate to Fulya Company.

1. Deferred tax liability, January 1, 2015, is $40,000.

2. Deferred tax asset, January 1, 2015, is $0.

3. Taxable income for 2015, $115,000.

4. Pretax financial income for 2015, is $200,000.

5. Cumulative temporary difference at December 31, 2015, giving rise to future taxable amounts, $220,000.

6. Cumulative temporary difference at December 31, 2015, giving rise to future deductible amounts, $35,000.

7. Tax rate for all years, 40%.

8. The company is expected to operate profitably in the future.

Requirements:

1. Compute income tax payable for 2015.

2. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2015.

3. Prepare the income tax expense section of the income statement for 2015, beginning with the line “Income before income taxes”.

Answer 1

Solution 1:

Income tax payable = Taxable Income *40% = $115,000*40% = $46,000

Solution 2:

Fulya Company
Account Title and Explanation	Debit	Credit
Income Tax Expense Dr ($200000*40%)	$80,000
Deferred Tax Asset Dr ($35000*40%)	$14,000
To Income Tax Payable ($115000*40%)		$46,000
To Deferred Tax Liability [($220000*40%) - $40000)		$48,000
(To record Income Tax expense, deferred income tax and Income tax payable for 2015)

Solution 3:

Fulya Company
Income Statement (Partial)
Income Before Income Taxes		$2,00,000
Less: Income Tax Expense:
Current	$46,000
Deferred ($48000-$14000)	$34,000
		$80,000
Net Income (Loss)		$1,20,000