The following information is available for Wenger Corporation:

1. Excess of tax depreciation over book depreciation, $43,800. This $43,800 difference will reverse equally over the years 2020-2023.

2. Deferral, for book purposes, of $18,100 of rent received in advance. The rent will be recognized in 2020.

3. Pretax financial income, $302,100.

4. Tax rate for all years, 20%.

Instructions:

(a) Compute taxable income for 2019.

(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019.

(c) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming taxable income is $325,000.

The taxable income for 2019 is $276,000.

Explanation:

(a) Calculation of taxable income for 2019:

Pretax financial income $302,100

Less: Excess of tax depreciation over book depreciation ($43,800)

Add: Rent received in advance $18,100

Taxable income for 2019 $276,400

(b) Journal entries for 2019: Debit ($) Credit ($)

Income tax expense ($302,100 x 20%) 60,420

Deferred tax asset ($18,100 x 20%) 3,620

Deferred tax liability ($43,800 x 20%) 8,760

Income tax payable ($276,400 x 20%) 56,800

Recording of income tax expense, deferred income taxes, and income taxes payable for 2019.

(c) Journal entries for 2020:

Income tax expense (65,000 + 3,620 - 2,190) 66,430

Deferred tax asset ($43,800 x 20% / 4) 2,190

Deferred tax liability ($18,100 x 20%) 3,620

Income tax payable ($325,000 x 20%) 65,000

Recording of income tax expense, deferred income taxes, and income taxes payable for 2020.

a) taxable income $276,400

b and c Journal entries prepared in the explanation

Explanation:

The first part is to compute the taxable income for 2019 as follows:

Description Amount

Pretax financial income for 2010 302,100

Subtract: Tax dep. excess over book dep. (43,800)

Add: Rent received in advance 18,100

Taxable income 276,400‬

B) Prepare the journal entry fro 2019 to record income tax expense, deferred income taxes and income taxes payable for 2019

Date Description Debit Credit

2019 Income tax ex. (302,100 x 20%) 60,420

Deferred tax (18,100 x 20%) 3,620

Deferred tax liability (43,800 x20%) 8,760

Income tax payable (276,400 x 20%) 55,280‬

Being the record of income tax expense, deferred tax income taxes and income tax payable

c) Prepare the journal entry fro 2020 to record income tax expense, deferred income taxes and income taxes payable for 2019

Date Description Debit Credit

2020 Income tax ex. (60,420 + 3,620-2,190) 61,850

Deferred tax liab. (43,800/4 yearsx 20%) 2,190

Deferred tax Asset (18,100 x20%) 3,620

Income tax payable (325,000 x 20%) 65,000

Being the record of income tax expense, deferred tax income taxes and income tax payable