During 2020, A Corp. has $100,000 book income, which includes $20,000 bad debt expense (estimated using the
Question:
During 2020, A Corp. has $100,000 book income, which includes $20,000 bad debt expense (estimated using the allowance method). For tax purposes, A uses the direct write-off method to determine bad debt expense and its bad debt expense is $7,000 ($13,000 less than for book purposes.) This is the only difference between A’s book income and its taxable income and the difference is expected to reverse during the following year.
A is subject to income tax at the 20% rate for all years. During 2020, it paid $5,000 in taxes (which it debited to Prepaid Income Taxes).
Instructions:
a. Prepare the journal entry to record A’s income tax expense for 2020.
b. Prepare the journal entry to record A’s income tax expense for 2021. Assume that during 2021, A’s BI is $160,000, the $20,000 bad debt expense difference reverses out, and A pays no income taxes during the year.
Pearsons Federal Taxation 2023 Comprehensive
ISBN: 9780137840656
36th Edition
Authors: Timothy J. Rupert, Kenneth E. Anderson, David S Hulse