Problem 19-7 Sheridan Carp. sold an investment on an installment basis. The tota
ID: 2531649 • Letter: P
Question
Problem 19-7 Sheridan Carp. sold an investment on an installment basis. The total gain of $76,800 was reported for fnancial reparting purposes in the period af sale. The company qualifies to use the instaliment-sales methad far tax purpases. The installment period is 3 years; one-third of thc sale price ts collected in the prod of sale. Thc tax rate was 40% in 2a17, and 35% in 201 H and 2a19. The 35% tax rate was not enacted in law unti 2a1H. Tho accounting and tax data for the years is shown helow. Financial Accounting Tax Return Income before temporary difference Temporary difference Income $89,600 76,800 $166,400 SB9,E00 $115,200 Income berore temporary difference $89,600 $69,600 Incoma $89,600 115,200 $89,6D Income bcfore temporary difference Temporary difference Incorme $39,600 $115,200Explanation / Answer
1. Cumulative Temporary defference
2. Current Tax Expenses
3. Deferred Tax Expenses
4. Journal Entries
2017.
Profit and Loss A/c Dr. 66560/-
To Current Tax A/c 46080/-
To Deferred Tax liability A/c 20480/-
2018.
1. Profit and Loss A/c Dr. 40320/-
To Current Tax A/c 40320/-
2. Deferred Tax liability A/c Dr. 11520/-
To Profit and Loss Account 11520/-
2019
1. Profit and Loss A/c Dr. 40320/-
To Current Tax A/c 40320/-
2. Deferred Tax liability A/c Dr. 8960/-
To Profit and Loss Account 8960/-
Extract Balance Sheet For Sheridan Corp.
Balance Sheet For 2017
Balance Sheet For 2018
Balance Sheet For 2019
6.
2017 2018 2019 51200 25600 Nil