Shetland inc. had pretax financial income of $154,000 in 2017. included in the computation of that amount is insurance expense of $4,000 which is not deductible for tax purposes. in addition, depreciation for tax purposes exceeds accounting depreciation by $10,000. prepare shetland’s journal entry to record 2017 taxes, assuming a tax rate of 45%.

Explanation:

The journal entry is shown below:

Income tax expense A/c Dr $71,100

      To Income tax payable        $666,00

      To Deferred tax liability       $4,500

(Being income tax expense is recorded)

The computation of income tax payable is shown below:

= (Pretax financial income + insurance expense - depreciation expense) × tax rate

= ($154,000 + $4,000 - $10,000) × 45%

= $148,000 × 45%

= $66,600

And, the differed tax liability equal to

= Depreciation expense × tax rate

= $10,000 × 45%

= $4,500

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