# Answered Essay: The following information is available for Windsor Corporation for 2016 (its first year of operations).

The following information is available for Windsor Corporation for 2016 (its first year of operations).

 1, Excess of tax depreciation over book depreciation, \$43,800. This \$43,800 difference will reverse equally over the years 2017–2020. 2. Deferral, for book purposes, of \$18,100 of rent received in advance. The rent will be recognized in 2017. 3. Pretax financial income, \$302,100. 4. Tax rate for all years, 30%.

a) Compute taxable income for 2016.

Taxable Income \$____

b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016.

c) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of \$309,200.

1. Compute taxable income for 2016.

Computation:

Taxable income = \$276,400

Workings:

Pretax Income for 2016                                                 = \$302,100

Less: Excess of tax depn over book depn                              = (\$43,800)

Taxable Income                                                                                = \$276,400

1. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016.

Solution:

Journal Entry:

Income Tax Expenses                    Dr           \$90,630

Deferred Tax Asset                         Dr           \$5,430

Income Tax Payable                        Cr            \$82,920

Deferred Tax Liability                     Cr            \$13,140

Working Notes:

Income Tax Payable = Taxable Income * Tax rate = \$276,400 * 30% = \$82,920

Deferred Tax Liability = Excess of tax depreciation * Tax rate = \$43,800 * 30% = \$13,140

Deferred Tax asset = Advance rant * Tax rate = \$18,100 * 30% = \$5,430

Income tax Expenses = Pretax financial income * Tax rate = \$302,100 * 30% = \$90,630

1. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of \$309,200.

Solution:

Journal Entry:

Income Tax Expenses                    Dr           \$94,905

Deferred Tax Liability                     Dr           \$3,285

Income Tax Payable                        Cr            \$92,760

Deferred Tax Asset                         Cr            \$5,430

Working Notes:

Income Tax Payable = Taxable income * Tax rate = \$309,200 * 30% = \$92,760

Deferred tax asset = \$5,430 since all revenue recognized in 2017

Deferred tax liability = \$13,140 / 4 years = \$3,285

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