Question

In 20X1, Modern Property Groups collected rent revenue for 20X2 tenant occupancy. For financial reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy rental property. But for income tax reporting it is taxed when collected. The deferred portion of the rent collected in 20X1 was $40,000. Taxable income is $100,000. No temporary differences existed at the beginning of the year, and the tax rate is 30%. The journal entry to record income taxes at the end of 20X1 includes (Select all that apply.)

Answer 1

Debit deferred tax asset for $12,000

Debit income tax expense for $18,000

Credit income tax payable for $30,000

Step-by-step explanation:

The journal entries will look as follows:

Date Account Name and Description Debit ($) Credit ($)

20X1 Deferred tax asset (w.1) 12,000

Income tax expense (w.3) 18,000

Income tax payable (w.2) 30,000

(To record income taxes at the end of 20X1.)

Workings:

w.1: Deferred tax asset = Deferred portion of the rent collected in 20X1 * Tax rate = $40,000 * 12% = $12,000

w.2: Income tax payable = Taxable income * Tax rate = $100,000 * 30% = $30,000

w.3: Income tax expense = Income tax payable - Deferred tax asset = $30,000 - $12,000 = $18,000