Question

Bandung Corporation began 2017 with a \(92,000 balance in the Deferred Tax Liability account. At the end of 2017, the related cumulative temporary difference amounts to \)350,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2017 is \(525,000, the tax rate for all years is 40%, and taxable income for 2017 is \)405,000. Instructions (a) Compute income taxes payable for 2017. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (c) Prepare the income tax expense section of the income statement for 2017 beginning with the line “Income before income taxes.”

Short answer

Income before income tax is a term prescribed under the organization's income statement, which defines the total revenue earned during the year exclusive of the taxes.

Step-by-step solution

(a) Computation of income taxes payable for the year 2017.

Particulars	Amount
Taxable income for the year 2017	$405,000
Multiply: Tax rate	40%
Income tax payable for 2017	$162,000

Computation of deferred tax asset and income tax expense for the year 2017

Particulars	2018	2019	Total
Taxable income	$175,000	$175,000	$350,000
Multiply: Tax rate	40%	40%
Deferred tax liability	$70,000	$70,000	$140,000

Particulars	Amount
Deferred tax liability at the end	$140,000
Less: Deferred tax liability at the beginning	$92,000
Deferred tax expense for 2017	$48,000
Add: Current tax expense for 2017	$162,000
Income tax expense for 2017	$210,000

(b) Journal entry

Date	Particulars	Debit	Credit
2017	Income tax expense	$210,000
	Income tax payable		$162,000
	Deferred tax liability		$48,000
	(To record the income tax expense)

(c) Income statement for the year 2017.

Income Statement for the year 2017
Particulars		Amount
Income before income tax		$525,000
Less: Income tax expense
Current tax expense	$162,000
Deferred tax expense	$48,000	$210,000
Net Income		$315,000