At December 31, 2014, Fell Corporation had a deferred tax liability of $680,000, resulting from future taxable amounts of $2,000,000 and an enacted tax rate of 34%. In May 2015, a new income tax act is signed into law that raises the tax rate to 40% for 2015 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Question

Kamila Koch

Business

20 November, 00:33

At December 31, 2014, Fell Corporation had a deferred tax liability of $680,000, resulting from future taxable amounts of $2,000,000 and an enacted tax rate of 34%. In May 2015, a new income tax act is signed into law that raises the tax rate to 40% for 2015 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

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Kailyn Wiggins · Answer 1

Dr Income Tax Expense 120,000

Cr Deferred Tax Liability 120,000

Explanation:

Deferred tax liability can be defined as the tax liability which has been due for the current period but has not yet been paid such as installment sales receivable.

Fell Corporation journal entry for to adjust the deferred tax liability

Dr Income Tax Expense 120,000

Cr Deferred Tax Liability 120,000

$2,000,000 x. 4 = $800,000

$800,000 - $680,000 = $120,000