Chapter 16, Problem 16.3P

1.

To determine

Temporary Difference

Temporary difference refers to the difference of one income recognized by the tax rules and accounting rules of a company in different periods. Consequently the difference between the amount of assets and liabilities reported in the financial reports and the amount of assets and liabilities as per the company’s tax records, is known as temporary difference.

Deferred Tax

Deferred tax is an amount i.e. computed on the basis of tax liability on the income as per income statement and the income as per tax return, that difference is known as deferred tax. Deferred tax amount is deferred to the next financial year.

Deferred tax liability

When the Income Tax Expense account is less than the Income Tax Payable account, this difference is known as Deferred Tax Liability.

To prepare: The journal entry to record the income taxes in 2016 assuming no difference between accounting and taxable income.

2.

To determine

To prepare: The journal entry to record the income taxes in 2017.

3.

To determine

The appropriate balance in the deferred tax liability account at the end of 2017.