Reference no: EM132817907

Johns Widget Wholesalers sells widgets to retailers for credit (on account). As is true for all firms with Receivables, some of Johns' clients default on their accounts. Hence, there are bad debts. Following the matching principle, John uses the Allowance Method and expenses estimated bad debts in the year of sale for financial reporting purposes. Following tax laws, on the tax returns, John uses the Direct Write-Off Method and deducts bad debt costs in the year an account is written off.

• In 2019, Johns' first year of operations, John recognized $90,000 of bad debt expense for financial accounting purposes (all from sales that occurred on December 31, 2019). Actual account defaults, and hence, write-offs, were for $38,000 in 2020 and $52,000 in 2021.
• No credit sales took place after 2019.
• Other financial income, before considering bad-debt expense, was $530,000 per year. The tax rate was 40% in all years.

Problem 1: What is the Income Tax Payable in 2019, 2020 and 2021?

Problem 2: Give the income tax journal entries for the company for 2019, 2020.