The Information That Follows Pertains To Julia Companya Temporary D
The information that follows pertains to Julia Company: (a) Temporary differences for the year 2024 are summarized below. Expenses deducted in the tax return, but not included in the income statement:
Depreciation $67,000; Prepaid expense $8,700. Expenses reported in the income statement, but not deducted in the tax return: Warranty expense $9,700. (b) No temporary differences existed at the beginning of 2024. (c) Pretax accounting income was $74,700 and taxable income was $8,700 for 2024.
(d) There were no permanent differences. (e) The tax rate is 40%. REQUIRED: Prepare the journal entry to record the tax provision for 2024.
Paper For Above instruction
In this analysis, we will prepare the journal entry to record the tax provision for Julia Company for the year 2024, based on the provided differences between the accounting income and taxable income, along with applicable temporary differences. This process involves calculating the deferred tax assets and liabilities resulting from these temporary differences and recognizing the current tax expense.
Step 1: Summarize the Temporary Differences
The temporary differences impacting Julia Company's tax computation include:
Deductible temporary differences:
Depreciation: $67,000 (expenses deducted for tax but not for accounting income)
Prepaid expense: $8,700 (expenses deducted for tax but not for accounting income)
Taxable temporary differences:
Warranty expense: $9,700 (reported in income statement but not deducted for tax)
Step 2: Calculate the Deferred Tax Assets and Liabilities
The applicable tax rate is 40%. Therefore, the deferred tax assets from deductible differences are calculated as:
Depreciation: $67,000 x 40% = $26,800
Prepaid expense: $8,700 x 40% = $3,480
The deferred tax liability from taxable temporary differences is:
Warranty expense: $9,700 x 40% = $3,880
Step 3: Compute the Current Tax Expense
The pretax accounting income is $74,700, and taxable income is $8,700, with a tax rate of 40%.
Current tax expense based on accounting income: $74,700 x 40% = $29,880
Step 4: Compute the Deferred Tax Expense or Benefit
The deferred tax liability is $3,880, and the deferred tax assets total $26,800 + $3,480 = $30,280. The net deferred tax amount is a deferred tax asset of:
Net deferred tax asset = $30,280 (assets) - $3,880 (liability) = $26,400
Since the deferred tax assets exceed the liabilities, the net effect increases the company’s tax receivable. The adjustment from temporary differences will be reflected in the tax expense calculation.
Step 5: Prepare the Journal Entry
The journal entry to record the tax provision for 2024 is as follows:
Debit: Income Tax Expense $56,280
Credit: Deferred Tax Asset $26,400
Credit: Income Tax Payable $29,880
This entry recognizes the current tax payable based on taxable income and the net deferred tax asset reflecting temporary differences. The total tax expense reflects both current and deferred components, ensuring compliance with accounting standards and accurate financial reporting.
Conclusion
Preparing the journal entry for Julia Company's 2024 tax provision involves careful assessment of temporary differences, calculation of deferred tax assets and liabilities, and recognition of current tax expense. The overall impact enhances understanding of the company's tax position and aligns with proper accounting principles, providing stakeholders with a clear view of its tax liabilities and assets.
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