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Computing, Journalizing and Presenting Deferred Income Taxes

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E19-3 One Temporary Difference, Future Taxable Amounts, One Rate, Beginning Deferred Taxes

Bandung Corporation began 2007 with a $92,000 balance in the Deferred Tax Liability account. At the end of 2007, the related cumulative temporary difference amounts to $350,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2007 is $525,000, the tax rate for all years is 40%, and taxable income for 2007 is $405,000.


(a) Compute income taxes payable for 2007.
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2007.
(c) Prepare the income tax expense section of the income statement for 2007 beginning with the line "Income before income taxes."

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Solution Summary

Using an Excel 97-2003 worksheet, this solution demonstrates how to compute taxable income when temporary and permanent differences exist, and journalize and present current and deferred income taxes.