During 2020, Kate Holmes Co.?s first year of operations, the company reports pretax financial income at $250,000. Holmes?s enacted tax rate is 45% for 2020 and 20% for all later years. Holmes expects to have taxable income in each of the next 5 years. The effects on future tax returns of temporary differences existing at December 31, 2020, are summarized as follows.

Instructions

a. Complete the schedule below to compute deferred taxes at December 31, 2020.

b. Compute taxable income for 2020.

c. Prepare the journal entry to record income taxes payable, deferred taxes, and income tax expense for 2020.

Transcribed Image Text:

Future Years 2022 2023 Total 2021 2025 2024 Future taxable (deductible) amounts: Installment sales Depreciation Unearned rent $ 96,000 30,000 (100,000) $32,000 6,000 (50,000) $32,000 6,000 (50,000) $32,000 6,000 $6,000 $6,000 December 31, 2020 Future Taxable (Deductible) Amounts Deferred Tax (Asset) Tax Temporary Difference Installment sales Depreciation Unearned rent Totals Rate Liability $ 96,000 30,000 $(100,000) | |