XYZ Co. at the end of 2018, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income € 750,000 Estimated expenses deductible for taxes when paid 1,200,000 Extra depreciation (1,350,000) Taxable income €_ 600,000 Estimated warranty expense of €800,000 will be deductible in 2019, €300,000 in 2020, and €100,000 in 2021. The use of the depreciable assets will result in taxable amounts of €450,000 in each of the next three years. Instructions (a) Prepare a table of future taxable and deductible amounts. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2018, assuming an income tax rate of 40% for all years.

XYZ Co. at the end of 2018, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income € 750,000 Estimated expenses deductible for taxes when paid 1,200,000 Extra depreciation (1,350,000) Taxable income €_ 600,000 Estimated warranty expense of €800,000 will be deductible in 2019, €300,000 in 2020, and €100,000 in 2021. The use of the depreciable assets will result in taxable amounts of €450,000 in each of the next three years. Instructions (a) Prepare a table of future taxable and deductible amounts. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2018, assuming an income tax rate of 40% for all years.

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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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

XYZ Co. at the end of 2018, its first year of operations, prepared a reconciliation between
pretax financial income and taxable income as follows:
Pretax financial income
€ 750,000
Estimated expenses deductible for taxes when paid
1,200,000
Extra depreciation
(1,350,000)
Taxable income
€ 600,000
Estimated warranty expense of €800,000 will be deductible in 2019, €300,000 in 2020, and
€100,000 in 2021. The use of the depreciable assets will result in taxable amounts of €450,000
in each of the next three years.
Instructions
(a) Prepare a table of future taxable and deductible amounts.
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and
income taxes payable for 2018, assuming an income tax rate of 40% for all years.

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