Exercise 19.8 (Two Temporary Differences, One rate, 3 years).Button Company has the following two temporary differences between its income tax expense and income taxes payable. 202020212022Pretax Financial Income$840,000$910,000$945,000Excess Depreciation Expense on tax Return(30,000)(40,000)(10,000)Excess Warranty Expense in Financial Income20,00010,0008,000Taxable Income$830,000$880,000$943,000 The income tax rate is 20% for all years. Instructions: a) Assuming there were no temporary differences prior to 2020, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020,2021, and 2022. b) Indicate how deferred taxes will be reported on the 2022 balance sheet. Button’s product warranty is for 12 months. Deferred tax asset ( $ 0 + $ 0 + $ 0 )..............................$ 0 Deferred tax liability ( $ 0 + $ 0 + $ 0 ).............................$ 0 Net non-current liability ( deferred tax liability ) ................$ 0 c) Prepare the income tax expense section of the income statement for 2022, beginning with the line “Pretax Financial Income”.

Deferred tax assets and deferred tax liability arising out of the temporary differences between…

Answered: Button Company has the following two…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

Exercise 19.8 (Two Temporary Differences, One rate, 3 years).

Button Company has the following two temporary differences between its income tax expense and income taxes payable.

	2020	2021	2022
Pretax Financial Income	$840,000	$910,000	$945,000
Excess Depreciation Expense on tax Return	(30,000)	(40,000)	(10,000)
Excess Warranty Expense in Financial Income	20,000	10,000	8,000
Taxable Income	$830,000	$880,000	$943,000

The income tax rate is 20% for all years.

Instructions:

a) Assuming there were no temporary differences prior to 2020, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020,2021, and 2022.

b) Indicate how deferred taxes will be reported on the 2022 balance sheet. Button’s product warranty is for 12 months.

Deferred tax asset ( $ 0 + $ 0 + $ 0 )..............................$ 0

Deferred tax liability ( $ 0 + $ 0 + $ 0 ).............................$ 0

Net non-current liability ( deferred tax liability ) ................$ 0

c) Prepare the income tax expense section of the income statement for 2022, beginning with the line “Pretax Financial Income”.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions