During 2019, Holmes Co. reports pretax financial income at $762,300 and a taxable income of $668,700. Holmes’s enacted tax rate is 25% for 2019, 2020 and 2021 and 20% for all later years. Holmes expects to have taxable income in each of the next 5 years, but has determined a valuation allowance of $9,000 is necessary. The Company has a Deferred Tax Liability-PP&E with a beginning balance of $16,000 and Deferred Tax Liability-AFS Investments of $81,000.  The effects on future tax returns of temporary differences existing at December 31, 2019, are summarized as follows.

		Future Years
		2020			2021			2022		2023		2024		Total
Future taxable/    deductible amounts:
Installment sales		$128,000			$168,750			$112,500		$97,000				$506,250
Depreciation		20,700			20,700			20,700		$20,700		$20,700		103,500
Unearned rent		115,800			115,800			115,800						347,400

INSTRUCTIONS:

Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable at December 31, 2019. (Show all supporting computations. You must evaluate each temporary difference individually and establish a deferred tax account for each, including in your adjusting journal entry.)  

Answer rating: 100% (QA)

Temporary Difference Future Taxable Deductible Amounts Tax Rate A... View the full answer