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28 April, 02:12

Whispering Inc. had pretax financial income of $166,600 in 2020. Included in the computation of that amount is insurance expense of $3,700 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $9,600. Prepare Whispering's journal entry to record 2020 taxes, assuming a tax rate of 25%.

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  1. 28 April, 04:09
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    The Journal Entry with narrations is shown below:-

    Explanation:

    The Journal entry is shown below:-

    1. Income tax expenses Dr, $42,575

    To Income tax payable $40,175

    To Deferred tax liability $2,400

    (Being income tax expenses for the year is recorded)

    Working note 1

    Pretax financial income $166,600

    Add: Permanent differences

    Disallowed insurance expense $3,700

    Less: Timing difference

    Excess depreciation allowed $9,600

    Income as per tax purpose $160,700

    Working note 2

    Income tax payable = Income tax rate * Income as per tax purposes

    = 25% * $160,700

    = $40,175

    Working note 3

    Deferred tax liability = Timing difference * Tax rate

    = $9,600 * 25%

    = $2,400
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