J-Matt, Inc., had pretax accounting income of $291,000 and taxable income of $300,000 in 2009. The only difference between accounting and taxable income is estimated product warranty costs for sales this year. Warranty payments are expected to be in equal amounts over the next three years. Recent tax legislation will change the tax rate from the current 40% to 30% in 2011. Determine the amounts necessary to record J-Matt's income taxes for 2009 and prepare the appropriate journal entry.

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Business

Miranda Fry

20 September, 01:31

J-Matt, Inc., had pretax accounting income of $291,000 and taxable income of $300,000 in 2009. The only difference between accounting and taxable income is estimated product warranty costs for sales this year. Warranty payments are expected to be in equal amounts over the next three years. Recent tax legislation will change the tax rate from the current 40% to 30% in 2011. Determine the amounts necessary to record J-Matt's income taxes for 2009 and prepare the appropriate journal entry.

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Braedon Gardner · Answer 1

Income Tax Payable = 300,000 x 40% = 120,000

Deferred Tax:

300,000 - 291,000 = 9000

9,000 / 3 = 3,000

The appropriate journal entry would be:

Account Title Dr Cr

Income Tax Expense 117,000

Deferred Tax Asset 3,000

Income Tax Payable 120,000