If the new tax rate had not been enacted

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Dixon Development began operations in December 2011. When lots for industrial development are sold, Dixon recognizes income for financial reporting purposes in the year of the sale. For some lots, Dixon recognizes income for tax purposes when collected. Income recognized for financial reporting purposes in 2011 for lots sold this way was $12 million, which will be collected over the next three years. Scheduled collections for 2012-2014 are as follows:
Pretax accounting income for 2011 was $16 million. The enacted tax rate is 40%.

Required:

1. Assuming no differences between accounting income and taxable income other than those described above, prepare the journal entry to record income taxes in 2011.

2. Suppose a new tax law, revising the tax rate from 40% to 35%, beginning in 2013, is enacted in 2012, when pretax accounting income was $15 million. Prepare the appropriate journal entry to record income taxes in 2012.

3. If the new tax rate had not been enacted, what would have been the appropriate balance in the deferred tax liability account at the end of 2012? Why?

Reference no: EM131003584

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