Chapter 19, Problem 8P

To determine

Temporary differences: The difference between the actual taxable liability and the books of records maintained by the individual, firm, or an entity is termed temporary difference. The difference is created due to the tenure of transactions or actual performance of transactions, flow of funds into the business, or changes in the value of the asset or liability due to business situations. These differences are adjustable in future when the appropriate time for the transaction arises.

Taxable income: Income that is computed after deducting all allowable or permissible deductions from the pretax financial income is called taxable income. In other words, the income which is eligible for computing the tax liability is taxable income.

• (a)

To determine the deferred tax amount and to record the same in the balance sheet for the year 2017.

Given information: Depreciation chargeable for the year 2017 is $60,000 which is half of the book depreciation value.

Rate of tax is 40%.

To determine

• (b)

To determine and record the journal entry for the income tax expense.

Given information: Tax payable for the year 2017 is $130,000 and the deferred tax asset is $24,000.

To determine

• (c)

To determine the net income of the year 2017.

To determine

• (d)

To determine the deferred tax expense for the year 2018.

Given information: Excess depreciation over book is $60,000; unearned rent is $150,000; and the rate of tax is 40%.

To determine

• (e)

To determine and record the journal entry for the income tax expense.

Given information: Tax payable for the year 2017 is $104,000 and the deferred tax asset is $84,000.

To determine

• (f)

To determine the net income of the year 2017.