In 2018, DFS Medical Supply collected rent revenue for 2019 tenant occupancy. For income tax reporting, the rent is taxed when collected. For financial statement reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy the rental property. The deferred portion of the rent collected in 2018 amounted to $460,000 at December 31, 2018. DFS had no temporary differences at the beginning of the year.

Required:

Assuming an income tax rate of 40% and 2018 income tax payable of $940,000, prepare the journal entry to record income taxes for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Question

Williams

Business

27 May, 06:02

In 2018, DFS Medical Supply collected rent revenue for 2019 tenant occupancy. For income tax reporting, the rent is taxed when collected. For financial statement reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy the rental property. The deferred portion of the rent collected in 2018 amounted to $460,000 at December 31, 2018. DFS had no temporary differences at the beginning of the year.

Required:

Assuming an income tax rate of 40% and 2018 income tax payable of $940,000, prepare the journal entry to record income taxes for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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Answers (1)

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Russell Mays · Answer 1

income tax expense 756,000 debit

deferred tax assets 184,000 debit

income tax payable 940,000 credit

Explanation:

As we are taxes as we collect but, for accounting reasons we reocngize gains under accrual method we have a portion of unearned reveneu which generates a deffered tax assets as next year this amount will not generate a tax payable:

unearned revenue 460,000

deferred tax assets: 460,000 x 40% = 184,000

income tax payable 940,000

- deferred tax assets 184,000

income tax expense 756,000