Prepare the journal entries to record income taxes

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Question - Paula Coal Company purchased equipment for $270,000 on January 2, 2021, its first day of operations. For book purposes, the equipment will be depreciated using the straight-line method over three years with no salvage value. Pretax financial income and taxable income are as follows:

 

2021

2022

2023

Pretax financial income

$156,000

$170,000

$180,000

Taxable income

120,000

170,000

216,000

The temporary difference between pretax financial income and taxable income is due to the use of accelerated depreciation for tax purposes.

Required - Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate as of 2021 is 30% and on January 1, 2022, Congress raises the income tax rate to 35%.

Reference no: EM132521928

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