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Southern Corporation began operations in January 2019 and purchased a machine for $120,000 at that time. Southern...

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Accounting

Southern Corporation began operations in January2019 and purchased a machine for $120,000 at that time.Southern uses straight-line depreciation over a four-year periodfor financial reporting purposes. For tax purposes, the deductionis 50% of cost in 2019, 30% in 2020, and 20% in2021. Pretax accounting income for 2021 –which is the THIRD year of using this machine – is$140,000, which includes interest revenues of $20,000 frommunicipal bonds. In December 31, 2020the enacted tax rate had been changed from 30% to 20%starting in2021. There are no otherdifferences between accounting and taxable income.

Prepare the JE for 2021

Answer & Explanation Solved by verified expert
4.0 Ratings (599 Votes)

For 2021 beginning deferred tax workings-
WDV at beginning in books            30,000
WDV at beginning in tax            24,000
Temporary difference              6,000
Deferred tax liability at beginning              1,800
Computation of tax payable-
Pre-tax income          140,000
Add: depreciation in books            30,000
Less: depreciation in tax          (24,000)
Less: exempted municipal bond interest          (20,000)
Taxable income          126,000
Tax rate 20%
Tax payabe            25,200
Date Accounts Debit Credit
2021 Income tax expenses A/c---Dr            25,200
Deferred tax liability A/c---Dr              1,800
To Tax payable A/c      25,200
To Deferred tax benefit A/c         1,800
(Being opening DTL reversed and tax expenses recorded for 2021)

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