Recording Multiple Temporary Differences, Multiple Tax Rates
On December 31, Colgate Inc. had an installment sale receivable balance of $180,000 recognized on its financial statements, while the amount was not recognized for tax purposes. Colgate Inc. also had a warranty accrual of $40,000 on December 31 that is not deductible for tax purposes. The installment receivable will be settled equally over the next three years. The warranty will be settled equally over the next two years. Taxable income for the current year was $1,000,000. Enacted tax rates are 25% for the current and next year, and 30% for years thereafter.
Required
a. Prepare schedules to compute the deferred tax balances on December 31.
●Note: Do not use negative signs with your answers.
Accounts receivable Year 2 Year 3 Year 4 Total
Reversal of difference between GAAP and tax bases Answer
0
Answer
0
Answer
0
0
Tax rate Answer
25
Answer
30
Answer
30
Answer
0
Answer
0
Answer
0
0
Warranty liability Year 2 Year 3 Year 4 Total
Reversal of difference between GAAP and tax bases Answer
0
Answer
0
Answer
0
0
Tax rate Answer
0
Answer
0
Answer
0
Answer
0
Answer
0
Answer
0
Answer
0
0
b. Prepare the current year journal entry to record income tax expense, assuming zero beginning balances in deferred tax accounts.
●Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).
Date Account Name Dr. Cr.
Dec. 31, Year 1
0
0
Answer
0
0
Answer
0
0
Answer
0
0
Answer
To record income tax expense