Please doublecheck my work on the above problem, not sure about this one, think
ID: 2601785 • Letter: P
Question
Please doublecheck my work on the above problem, not sure about this one, think I might have missed a step or 2 in the calculations.
0 Problem 16-1 2 Aslap Consulting sometimes performs services for wich it receives paymeny at the conclusion of the engagement, up to 3 6 months after services commence. Aslap recognizes service revenue for financial reporting purposes when the service is 4 performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and 5 pre-tax accounting income for 2015-2018 are as follows: 8 2015 9 2016 0 2017 1 2018 Service Rev $650,000 $750,000 $725,000 $700,000 Collections $620,000 $770,000 $700,000 $720,000 Pre-tax Income $186,000 $250,000 $220,000 $200,000 3 There are no differences between accounting income and taxable income other than the temporary difference described above 4 The enacted tax rate for each year is 40%Explanation / Answer
3.
In 2017, uncollected amount is $ 35000, just add up 650000+75000+725000 of 2015,16 and 17 and than deduct it from 62000+770000+700000. This gives you difference of $ 35000 to be collected. Tax Adjustment on $ 35000 after adjustmnet of $ 4000 would be $ 10000. Corresponding entry shall be
Debit Income Tax Expenses $ 88000
Credit Deffered Tax Liability $ 10000
Credit Income Tax Payable $ 78000
4.
You have correctly calculated amount of $ 6000 as DTL but Income tax expenses must be simple 40% of pre tax income i.e. $ 2,00,000 x 40% = $ 80,000.