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Intermediate Accounting 9th edition by Spiceland, Nelson, and Thomas. P - 16 - 3.

As you can see in the first question the lot sales (12) is deducted from the pretax income of 16 to = 4. But in the 2nd question the pretax income is 15 and lot sales of 4 are added. Why is this? Shouldn't they both be subtracted?

Dixon Development began operations in December 2018. When lots for industrial development are sold, Dixon recognizes income for financial reporting purposes in the year of the sale. For some lots, Dixon recognizes income for tax purposes when collected. Income recognized for financial reporting purposes in 2018 for lots sold this way was $12 million, which will be collected over the next three years. Scheduled collections for 2019-2021 are as follows: 2019 $ 4 million 20205 million 2021 3 million $12 million Pretax accounting income for 2018 was $16 million. The enacted tax rate is 40%. Required: 1. Assuming no differences between accounting income and taxable income other than those described above, prepare the journal entry to record income taxes in 2018. 2. Suppose a new tax law, revising the tax rate from 40% to 35%, beginning in 2020, is enacted in 2019, when pretax accounting income was $15 million. No 2019 lot sales qualified for the special tax treatment. Prepare the appropriate journal entry to record income taxes in 2019. 3. If the new tax rate had not been enacted, what would have been the appropriate balance in the deferred tax liability account at the end of 2019? Why? (1) Prepare the appropriate journal entry to record 2018 income taxes: Step 1: Determine the amount of income tax payable and deferred tax liability: Future Curent Future Taxable Year Taxable Amount Amount (All Amounts are in $ Millions) 2018 2019 2020 2021 Total Pre-tax accounting income 16 Temporary difference: Lot Sales (12) 45 3 12 Taxable income tax return) 4 Enacted tax rate x 40% x 40% Income Tax Payable 1.60 Deferred tax liability 4.80 Comment (2) Prepare the appropriate journal entry to record 2019 income taxes: Step 1: Determine the amount of income tax payable and deferred tax liability. Future Curent Future Taxable Taxable Year Amount Amount (All Amounts are in $ Millions) 2019 2020 2021 Total Pre-tax accounting income 15 Temporary difference: Lot Sales 45 38 Taxable income tax return) 19 Enacted tax rate x 40% x 35% Income Tax Payable 7.6 Deferred tax liability 2.80 Comment

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