A company has a temporary difference due to depreciation. For fiscal year 2012, its Income Tax Expense is $15,000 and its Taxable Income is $10,000. The statutory tax rate is 35%
Cr. Deferred Tax Liabilities 11,500
Cr. Income Tax Payable 3,500
Cr. Income Tax Payable 15,000
Dr. Deferred Tax Liabilities 85,000
Cr. Income Tax Payable 100,000
Dr. Deferred Tax Assets 85,000
Cr. Income Tax Payable 100,000
Cr. Deferred Tax Assets 11,500
Cr. Income Tax Payable 3,500
First, note that depreciation leads to DTLs. The journal entry should Dr. Income Tax Expense 15,000; Cr. Deferred Tax Liability 11,500; and Cr. Income Tax Payable 3,500. Income Tax Payable = Taxable Income x Statutory Rate = $10,000 x .35 = $3,500. The DTL number is a plug to balance the entry.
