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7 May, 13:35

A company reports pretax accounting income of $10 million, but because of a single temporary difference, taxable income is $12 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%. Prepare the appropriate journal entry to record income taxes.

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  1. 7 May, 14:01
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    Answer: Journal entry : -

    Income tax expense A/C Dr. $4,000,000

    Deferred tax asset A/C Dr. $800,000

    To income tax payable $4,800,000

    Explanation: Above figures are computed as follows : -

    Income tax expense = (10 million) * (40%) = $4,000,000

    Deferred tax asset = (12 million - 10 million) * (40%) = $800,000

    Income tax payable = (12 million) * (40%) = $4,800,000
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