The following information was disclosed during the audit of Zheng Group.
1.
Year Amount Due per Tax Return
2018..........................................¥130,000,000
2019............................................104,000,000
2. On January 1, 2018, equipment costing ¥600,000,000 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life. For tax purposes, the company uses the double-declining balance method over 5 years.
3. In January 2019, ¥225,000,000 is collected in advance rental of a building for a 3-year period. The entire ¥225,000,000 is reported as taxable income in 2019, but ¥150,000,000 of the ¥225,000,000 is reported as unearned revenue in 2019 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2020 and 2021.
4. The tax rate is 40% in 2018 and all subsequent periods.(Hint: To find taxable income in 2018 and 2019, the related income taxes payable amounts will have to be "grossed up.")
5. No temporary differences existed at the end of 2017. Zheng expects to report taxable income in each of the next 5 years.
Instructions
a. Determine the amount to report for deferred income taxes at the end of 2018, and indicate how it should be classified on the statement of financial position.
b. Prepare the journal entry to record income taxes for 2018.
c. Draft the income tax section of the income statement for 2018, beginning with "Income before income taxes."
d. Determine the deferred income taxes at the end of 2019, and indicate how they should be classified on the statement of financial position.
e. Prepare the journal entry to record income taxes for 2019.
f. Draft the income tax section of the income statement for 2019, beginning with "Income before income taxes."