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Southern Corporation began operations in January 2019 and purchased a machine for $120,000 at that time. Southern...

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Accounting

Southern Corporation began operations in January2019 and purchased a machine for $120,000 at that time.Southern uses straight-line depreciation over a four-year periodfor financial reporting purposes. For tax purposes, the deductionis 50% of cost in 2019, 30% in 2020, and 20% in2021. Pretax accounting income for 2020 –which is the SECOND year of using this machine –is $150,000, which includes interest revenue of $20,000 frommunicipal bonds. The enacted tax rate is 30% for allyears. There are no other differences between accountingand taxable income.

Prepare the JE for 2020

Answer & Explanation Solved by verified expert
4.2 Ratings (555 Votes)

Depreciation in the accounting book (120000/4)            30,000
Depreciation in the income tax purposes (120000*30%)            36,000
Temorary difference              6,000
Pretax financial income          150,000
Permanent differences
Less: Interest income on municipal bonds          (20,000)
Pretax financial income after adjusted to permanent differences          130,000
Temporary differences
Less: Lower recorded depreciation expense in books              6,000
Taxable income          124,000
Multiply: Tax rate                       0
Income tax payable            37,200

Answer :-

Date Account title and explanation Debit Credit
Dec 31, 2020 Income Tax Expense (130000*30%)          39,000
Deferred Tax Liability (6000*30%)            1,800
Income Tax Payable          37,200
(To record Income Tax Expense for the period.)

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