Question: (One Temporary Difference, Future Taxable Amounts, One Rate, Beginning Deferred Taxes) Houston Corporation began 2014 with a $92,000 balance in the Deferred Tax Liability account.

(One Temporary Difference, Future Taxable Amounts, One Rate, Beginning Deferred
Taxes) Houston Corporation began 2014 with a $92,000 balance in the Deferred Tax
Liability account. At the end of 2014, the related cumulative temporary difference amounts to
$350,000 and it will reverse evenly over the next 2 years. Pretax accounting income for 2014 is
$525,000 , the tax rate for all years is 40% , and taxable income for 2014
is $405,000
Instructions: Fill in all forms and show calculation
(a) Compute income taxes payable for 2014.
Taxable income for 2014 Amount
Enacted tax rate Percentage
Income tax payable for 2014 Formula
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014.
Future Years 2015 2016 Total
Future taxable (deductible) amounts Amount Amount Formula
Tax Rate Percentage Percentage
Deferred tax liability (asset) Formula Formula Formula
Deferred tax liability at the end of 2014 Amount
Title Amount
Title Formula
Title Formula
Title Formula
Account Title Amount
Account Title Amount
Account Title Amount
(c) Prepare the income tax expense section of the income statement for 2014, beginning with the line "Income before income taxes."
Income before income taxes Amount
Income tax expense
Title Formula
Title Formula Formula
Title Formula
Note to instructor: Because of the flat tax rate for all years, the amount of cumulative temporary difference existing at the beginning of the year can be calculated by dividing $92,000 by 40%, which equals $230,000. The difference between the $230,000 cumulative temporary difference at the beginning of 2014 and the $350,000 cumulative temporary difference at the end of 2014 represents the net amount of temporary difference originating during 2014 (which is $120,000). With this information, we can reconcile pretax financial income with taxable income as follows:
Pretax financial income Amount
Title Amount
Title Formula

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