Question

The DeVille Company reported pretax accounting income on its income statement as follows: 2018 2019 2020 2021 $365,000 285,000 355,000 395,000 Included in the income of 2018 was an installment sale of property in the amount of $34,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $13,600 in 2019, $17,000 in 2020, and $3,400 in 2021. Included in the 2020 income was $12,000 interest from investments in municipal bonds. The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond.

Answer 1

Answer:

Year	Account Tittles and Explanation	Debit($)	Credit($)
2018	Tax Expense	1,09,500
	Deferred Tax Liability (34000*30%)		10,200
	Tax Payable (331000*30%)		99,300
2019	Tax Expense	84,480
	Deferred Tax Liability (34000-13600)*25%	5,100
	Tax Payable (298600*30%)		89,580
2020	Tax Expense	85,750
	Deferred Tax Liability (17000*25%)	4,250
	Tax Payable (360000*25%)		90,000
2021	Tax Expense	98,750
	Deferred Tax Liability (3400*25%)	850
	Tax Payable (398400*25%)		99,600
Working Note:
2018	Particulars	Amount($)
	Pretax Accounting Income	3,65,000
	Less: Installment Revenue	-34,000
	Add: Installment Collection
	Taxable Income	3,31,000
2019	Pretax Accounting Income	2,85,000
	Less: Installment Revenue
	Add: Installment Collection	13,600
	Taxable Income	2,98,600
2020	Pretax Accounting Income	3,55,000
	Less: Permanent difference - Municipal interest	-12,000
	Adjusted Pretax Accounting Income	3,43,000
	Less: Installment Revenue
	Add: Installment Collection	17,000
	Taxable Income	3,60,000
2021	Pretax Accounting Income	3,95,000
	Less: Installment Revenue
	Add: Installment Collection	3,400
	Taxable Income	3,98,400