Question

Using the information from BE19-2, assume this is the only difference between Oxford’s pretax financial income and taxable income. Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable, and show how the deferred tax liability will be classified on the December 31, 2017, balance sheet.

Short answer

Income taxis the amount oftax levied on the total earned incomeof anindividual or a firm. The total tax amount ispayable to the government,further used foreconomic development.

Step-by-step solution

Computation of income tax payable, deferred tax liability, and income tax expense for 2017

$\begin{array}{rcl}\mathrm{Income}\mathrm{Tax}\mathrm{payable}& =& (\mathrm{Pretax}\mathrm{financial}\mathrm{income}-\mathrm{Excess}\mathrm{Depreciation})\times \mathrm{Tax}\mathrm{Rate}\\ & =& (\$225,000-\$40,000)\times 30\%\\ & =& \$185,000\times 30\%\\ & =& \$55,500\end{array}$

role="math" localid="1648202959036" $\begin{array}{rcl}\mathrm{Deferred}\mathrm{Tax}\mathrm{Liability}& =& \mathrm{Excess}\mathrm{Depreciation}\times \mathrm{Tax}\mathrm{Rate}\\ & =& \$40,000\times 30\%\\ & =& \$12,000\end{array}$

$\begin{array}{rcl}\mathrm{Income}\mathrm{Tax}\mathrm{expense}& =& \mathrm{Income}\mathrm{taxes}\mathrm{payable}+\mathrm{Deferred}\mathrm{tax}\mathrm{liability}\\ & =& \$55,500+\$12,000\\ & =& \$67,500\end{array}$

Journal entries

Oxford Corporation
Journal Entry
Date	Particulars	Debit	Credit
2017	Income tax expense	$67,500
	Deferred tax liability		$12,000
	Income tax payable		$55,500
	(To record the income tax expense)