The comparative statement of earnings for Chung Corporation for fiscal years 2013 and 2014 provided the following summarized pretax data:

The expenses for 2014 included an amount of $ 3,000 that was deductible only on the 2013 income tax return. The average income tax rate was 30 percent. Taxable income shown in the tax returns was $ 18,000 for 2013 and $ 27,000 for 2014.
Required:
1. For each year, compute (a) the income taxes payable and (b) the deferred income tax. Is the deferred income tax a liability or an asset? Explain.
2. Prepare the journal entry for each year to record the income taxes payable, the deferred income tax, and the income tax expense.
3. Show the tax-related amounts that should be reported each year on the statement of earnings and the statement of financial position. Assume that income tax is paid on March 1 of the next year.
4. Why would management want to incur the cost of preparing separate tax and financial accounting reports to defer the payment of taxes?

Transcribed Image Text:

2013 $75,000 2014 $82,000 Revenue Expenses (excluding income tax)54000 58,000 Pretax earnings $21,000 $24,000