Watson Corporation prepared the following reconciliation for its first year of operations:

Pretax Financial income for 2017 = $1,400,000

Tax exempt interest (permanent difference) = - $100,000

Originating temporary difference = - $300,000

Taxable income = $1,000,000

Temporary difference will reverse evenly over the next two years at an enacted tax rate of 21%. The enacted tax rate for 2017 is 35%.

a) What amount should be reported in its 2017 income statement as the current portion of its provision for income taxes?

b) What amount should be shown on the balance sheet for Watson's deferred taxes?

Question

Business

Fisher Ayers

11 February, 20:37

Watson Corporation prepared the following reconciliation for its first year of operations:

Pretax Financial income for 2017 = $1,400,000

Tax exempt interest (permanent difference) = - $100,000

Originating temporary difference = - $300,000

Taxable income = $1,000,000

Temporary difference will reverse evenly over the next two years at an enacted tax rate of 21%. The enacted tax rate for 2017 is 35%.

a) What amount should be reported in its 2017 income statement as the current portion of its provision for income taxes?

b) What amount should be shown on the balance sheet for Watson's deferred taxes?

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Answers (1)

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Aaron Bolton · Answer 1

the entry will report:

income tax expense 413,000 debit

deferred tax liaiblity 63,000 credit

tax payable 350,000 credit

Explanation:

temporary difference tax liability:

300,000 x 21% = 63,000

taxable income income tax:

1,000,000 x 35% = 350,000

total income expense for the period:

413,000

deffered tax liability 63,000

tax payable 350,000