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1 July, 12:12

Saunders Inc., reported pretax accounting income of $100,000 during the current year, which included $10,000 interest from investments in municipal bonds. The enacted tax rate is 25%.

Prepare the appropriate journal entry to record the company's income taxes for the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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  1. 1 July, 12:35
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    Debit: Tax Expense $25,000

    Credit: Income Tax Payable $22,500

    Credit: Deferred Tax Liability $2,500

    Explanation:

    Pretax accounting income $100,000

    Less: Interest from investments in municipal bonds - $10,000

    Taxable Income $90,000

    Tax As per Accounts ($100,000 x 25%) $25,000

    Taxes Paid ($90,000 x 25%) 22,500

    Difference $2,500

    Saunders Inc.

    Current Year

    Debit: Tax Expense $25,000

    Credit: Income Tax Payable $22,500

    Credit: Deferred Tax Liability $2,500

    To Record Income Tax Payable.
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