Recording Multiple Temporary Differences, Change in Enacted Tax Rate Wittco Company reports pretax GAAP income in Year 1, its first year of operations, of $350,000. Temporary differences in the GAAP basis and tax basis of assets arose during the year from the following two sources. Prepayment of Year 2 rent in the amount of $84,000 in Year 1. instaliment sale totaling $126,000, with cash collections expected in two equal amounts in Year 3 and Year 4. The enacted tax rates are 25% in Year 1, 30% in Year 2, and 40% in Year 3 and thereafter. Required a. Record the income tax journal entry on December 31 of Year 1. Date Dec 31, Year 1 Income Tax Expense Deferred Tax Liability Income Tax Payable To record income tax expense Account Name Dr. 65,600 0 0 Cr. 0 30,600 35,000 b. Record the income tax journal entry on December 31 of Year 1, assuming that a new tax law is passed in Year 1 decreasing the tax rate to 20% for Year 1 and all years thereafter.

Recording Multiple Temporary Differences, Change in Enacted Tax Rate Wittco Company reports pretax GAAP income in Year 1, its first year of operations, of $350,000. Temporary differences in the GAAP basis and tax basis of assets arose during the year from the following two sources. Prepayment of Year 2 rent in the amount of $84,000 in Year 1. instaliment sale totaling $126,000, with cash collections expected in two equal amounts in Year 3 and Year 4. The enacted tax rates are 25% in Year 1, 30% in Year 2, and 40% in Year 3 and thereafter. Required a. Record the income tax journal entry on December 31 of Year 1. Date Dec 31, Year 1 Income Tax Expense Deferred Tax Liability Income Tax Payable To record income tax expense Account Name Dr. 65,600 0 0 Cr. 0 30,600 35,000 b. Record the income tax journal entry on December 31 of Year 1, assuming that a new tax law is passed in Year 1 decreasing the tax rate to 20% for Year 1 and all years thereafter.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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