Problem 16-1 Single temporary difference originates each year for four years [LO
ID: 2538569 • Letter: P
Question
Problem 16-1 Single temporary difference originates each year for four years [LO16-1]
Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2017–2020 are as follows:
There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is 40%.
(Hint: You may find it helpful to prepare a schedule that shows the balances in service revenue receivable at December 31, 2017–2020.)
Required:
1. Prepare the appropriate journal entry to record Alsup's 2018 income taxes, Alsup’s 2019 income taxes and Alsup’s 2020 income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands.)
Income 2017 $ 718,000 $ 698,000 $ 270,000 2018 830,000 840,000 335,000 2019 795,000 775,000 305,000 2020 780,000 805,000 285,000
Explanation / Answer
Journal Entries:
Total 'Tax Expense' for each year will be 40% of Pre Tax Accounting Profit.
Working:
Year 2017 Income tax Expense A/c Dr 64000 Income Tax Payable A/c Cr 64000 Deferred Tax Expense A/c Dr 8000 Deferred Tax Liability A/c Cr 8000 (Total Tax Expense = 64000+8000=72000) Year 2018 Income tax Expense A/c Dr 102000 Income Tax Payable A/c Cr 102000 Deferred Tax Liability A/c Dr 4000 Deferred Tax Income A/c Cr 4000 (Total Tax Expense = 102000-4000=98000) Year 2019 Income tax Expense A/c Dr 72000 Income Tax Payable A/c Cr 72000 Deferred Tax Expense A/c Dr 14000 Deferred Tax Liability A/c Cr 14000 (Total Tax Expense = 72000+14000=86000) Year 2020 Income tax Expense A/c Dr 86000 Income Tax Payable A/c Cr 86000 Deferred Tax Liability A/c Dr 8000 Deferred Tax Income A/c Cr 8000 (Total Tax Expense = 86000-8000=78000)