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Patterson Development sometimes sells property on an installment basis. In those cases, Patterson reports income in its income statement in the year of the sale but reports installment income by the installment method on the tax return. Installment income in 2021 was $240 million, which Patterson expects to collect equally over the next four years. The tax rate is 25%, but based on an enacted law, is scheduled to become 35% in 2023.
Patterson's pretax accounting income for the 2013 income statement was $530 million of this, $30 million is non-taxable revenue from proceeds of a life insurance policy. There were no differences between accounting income and taxable income other than those described above and no cumlative temporary differences existed at the beggining of the year:
1. Prepare the appropriate journal entry to record patterson's 2013 income taxes.
2. What is Patterson's 2013 net income?

Respuesta :

Answer:

1. Debit Income tax expense for $143 million; Credit Deferred tax liability for $78 million; and Credit Income tax payable for $65 million.

2. Patterson's 2021 net income is $387.

Explanation:

Note: There is an error in the question because of date inconsistency. Therefore, 2021 upward is used in the answer to ensure date consistency.

1. Prepare the appropriate journal entry to record patterson's 2021 income taxes.

Note: See the attached excel file for the calculation of income tax payable and deferred tax liability.

The journal entry will look as follows:

Date                General journal                    Debit (

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M)         Credit (

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M)  

31 Dec 2021    Income tax expense                143

                          Deferred tax liability                                           78

                          Income tax payable                                            65

                        (To record income tax payable.)                                          

2. What is Patterson's 2021 net income?

This can be determined as follows:

Particulars                                    (

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Million)    

Pre accounting income                      530

Income tax expense                         (143)    

Net income                                         387  

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