Question

Exercise 19-2

The following information is available for Riverbed Corporation for 2016 (its first year of operations).

1.		Excess of tax depreciation over book depreciation, $39,600. This $39,600 difference will reverse equally over the years 2017–2020.
2.		Deferral, for book purposes, of $21,900 of rent received in advance. The rent will be recognized in 2017.
3.		Pretax financial income, $271,300.
4.		Tax rate for all years, 30%.

(A) Compute Taxable Income for 2016

Taxable income $__________

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

(C) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $352,100. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Allowance to Reduce Deferred Tax Asset to Expected Realizable Value
Benefit Due to Loss Carryback
Benefit Due to Loss Carryforward
Deferred Tax Asset
Deferred Tax Liability
Income Tax Expense
Income Tax Payable
Income Tax Refund Receivable
No Entry

Answer 1

SOLUTION

Taxable income -

Particulars	Amount ($)
Pretax financial income for 2016	271,300
Less: Excess of tax depreciation over book value	(39,600)
Add: Rent received in advance	21,900
Taxable income	253,600

.Journal entries-

S. No.	Date	Account Titles and Explanation	Debit ($)	Credit ($)
1.	2016	Income tax expense (271,300*30%)	81,390
		Deferred tax asset (21,900*30%)	6,570
		Income tax payable (253,600*30%)		76,080
		Deferred tax liability (39,600*30%)		11,880
2.	2017	Income tax expense	109,230
		Deferred tax liability (39,600/4*30%)	2,970
		Income tax payable (352,100*30%)		105,630
		Deferred tax asset (21,900*30%)		6,570