Tax Effects and Journal Entries

The assignment delves into the complexities of income tax accounting, specifically focusing on the treatment of temporary differences. It requires students to calculate a temporal difference, determine the associated tax expense, and record appropriate journal entries for both deferred tax assets and liabilities. The example provided showcases the impact of these transactions in 2014 and 2015.

Running head: TAX
Tax
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer to Question a).....................................................................................................................3
Answer to Question b).....................................................................................................................4
Answer to Question c).....................................................................................................................4
Answer to Question d).....................................................................................................................4
Answer to Question e).....................................................................................................................5
Bibliography....................................................................................................................................6

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Answer to Question a)
Calculation of Temporal Difference
Particulars Carrying Value Tax Base
Temporary
difference
Deferred
Tax
liability
Year 1
Assets $100,000.00 $100,000.00
Less:
Accumulated Depreciation $12,500.00 $20,000.00
Net Assets $87,500.00 $80,000.00 $7,500.00 $2,250.00
Year 2
Assets $100,000.00 $100,000.00
Less:
Accumulated Depreciation $25,000.00 $40,000.00
Net Assets $75,000.00 $60,000.00 $15,000.00 $4,500.00
Year 3
Assets $100,000.00 $100,000.00
Less:
Accumulated Depreciation $37,500.00 $60,000.00
Net Assets $62,500.00 $40,000.00 $22,500.00 $6,750.00
Calculation of Depreciation
Particulars Accounting Purpose Taxation Purpose
Cost of the Assets $100,000.00 $100,000.00
Useful life 8 5
Depreciation $12,500.00 $20,000.00

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Answer to Question b)
Statement showing calculation of Deferred tax Assets
Particulars Amount
Allowance for doubtful debt $3,000.00
Tax rate 30%
Deferred tax Assets $900.00
Statement showing Journal Entry
Particulars Debit Credit
Deferred Tax Assets $900.00
Deferred Tax Liability $900.00
(Journal entry for tax effect)
Answer to Question c)
Statement showing Journal Entry
Particulars Debit Credit
Income Tax Expenses $4,500.00
Deferred Tax Liability $4,500.00
(Journal entry for tax effect)
Calculation:
Temporal Difference= (80000-60000)= 20000
Tax on temporal difference= (20000X30%)= 6000
Tax liability recoded earlier = 1500

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Deferred Tax liability= 4500.
Answer to Question d)
Journal Entry
Particular Debit Credit
Deferred Tax Assets $1,500.00
Income Tax Expenses $1,500.00
(Being deferred tax assets recognized)
Income Tax Expenses $225.00
Deferred Tax liability $225.00
(Being deferred tax liability recognized)
Income Tax Expenses $25,275.00
Tax Payable $25,275.00
(Being income tax expenses transferred to tax payable)
Answer to Question e)
Journal Entry
Particulars Debit Credit
2014
Deferred tax Assets $150,000.00
Income Tax Revenue
$150,000.
00
(Being the benefit associated with tax losses is expected to be
recouped)
2015
Income Tax Expenses
$
210,000.00
Deferred tax Assets
$150,000.
00
Income Tax Payable
$60,000.0
0
(Being tax expenses recognized)

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Bibliography
Bodie, Z. (2013). Investments. McGraw-Hill.
Lubbe, I., Modack, G., & Watson, A. (2014). Financial Accounting GAAP Principles. OUP
Catalogue.
Robinson, L. A., Stomberg, B., &Towery, E. M. (2015). One size does not fit all: How the
uniform rules of FIN 48 affect the relevance of income tax accounting. The Accounting
Review, 91(4), 1195-1217.

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