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Prepare the journal entry to record income taxes

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Reference no: EM132968104

Question - The following information was disclosed during the audit of Indigo Inc.

1. Year Amount Due per Tax Return

2020. $130,000

2021. $109,000

2. On January 1, 2020, equipment costing $586,100 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life. For tax purposes, the company uses the elective straight-line method over a 5-year life. (Hint: For tax purposes, the half-year convention as discussed in Appendix 11A must be used.)

3. In January 2021, $215,100 is collected in advance rental of a building for a 3-year period. The entire $215,100 is reported as taxable income in 2021, but $143,400 of the $215,100 is reported as unearned revenue in 2021 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2022 and 2023.

4. The tax rate is 20% in 2020 and all subsequent periods. (Hint: To find taxable income in 2020 and 2021, the related income taxes payable amounts will have to be "grossed up.")

5. No temporary differences existed at the end of 2019. Indigo expects to report taxable income in each of the next 5 years.

Required - Prepare the journal entry to record income taxes for 2021.

Reference no: EM132968104

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