In 2016, DFS Medical Supply collected rent revenue for 2017 tenant occupancy. For income tax reporting, the rent is taxed when collected. For financial statement reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy the rental property. The deferred portion of the rent collected in 2016 amounted to $300,000 at December 31, 2016. DFS had no temporary differences at the beginning of the year. Required: Assuming an income tax rate of 40% and 2016 income tax payable of $950,000, prepare the journal entry to record income taxes for 2016.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
In 2016, DFS Medical Supply collected rent revenue for 2017 tenant occupancy. For income tax reporting, the rent is taxed when collected. For financial statement reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy the rental property. The deferred portion of the rent collected in 2016 amounted to $300,000 at December 31, 2016. DFS had no temporary differences at the beginning of the year. Required: Assuming an income tax rate of 40% and 2016 income tax payable of $950,000, prepare the
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