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A company reports 2021 pretax accounting income of $38 million, but because of a single temporary difference, taxable income is only $21 million. No temporary differences existed at the beginning of the year, and the tax rate is 25%.

Required:
Prepare the appropriate journal entry to record income taxes.

Sagot :

Parrain

Answer:

Date                     Account Title                                   Debit               Credit

XX-XX-2021        Income tax expense                  $9,500,000

                            Deferred tax liability                                            $4,250,000

                            Income tax payable                                             $5,250,000

Explanation:

Income tax expense = Pretax income * tax rate

= 38,000,000 * 25%

= $9,500,000

Deferred tax liability = (Pretax income - Taxable income) * tax rate

= (38 million - 21 million) * 25%

= $4,250,000

Income tax payable = Taxable income * tax rate

= 21,000,000 * 25%

= $5,250,000

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