Question - The differences between the book basis and tax basis of the assets and liabilities of Sheridan Corporation at the end of 2016 are presented below.
|
Book Basis
|
Tax Basis
|
|
Accounts receivable
|
$48,100
|
$0
|
|
Litigation liability
|
30,900
|
0
|
It is estimated that the litigation liability will be settled in 2017. The difference in accounts receivable will result in taxable amounts of $29,200 in 2017 and $18,900 in 2018. The company has taxable income of $357,000 in 2016 and is expected to have taxable income in each of the following 2 years. Its enacted tax rate is 34% for all years. This is the company's first year of operations. The operating cycle of the business is 2 years.
Required - Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016.