Question

In 2018, Ryan Management collected rent revenue for 2019 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 2018 was $60 million. Taxable income is $180 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%. Suppose the deferred portion of the rent collected was $50 million at the end of 2019. Taxable income is $200 million.

Prepare the appropriate journal entry to record income taxes.

Answer 1

No Event General Journal Debit Credit

1 1 Income tax expense 84

Deferred tax asset 4

Income tax payable 80

At the end of the year, the deferred tax asset account had a balance of $12 million attributable to a cumulative temporary difference of $30 million in a liability for estimated expenses. Taxable income is $35 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%.