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Question

Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2017–2020 are as follows:

Service Revenue Collections Pretax Accounting Income
2017 $650,000 $620,000 $186,000
2018 750,000 770,000 250,000
2019 715,000 700,000 220,000
2020 700,000 720,000 200,000

There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is40%40 \%.

Required:

  1. Prepare the appropriate journal entry to record Alsup's 2018 income taxes.
  2. Prepare the appropriate journal entry to record Alsup's 2019 income taxes.
  3. Prepare the appropriate journal entry to record Alsup's 2020 income taxes.

Solution

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Future taxable amount (FTA) 2018\textbf{Future taxable amount (FTA) 2018}

FTA_2018=CollectionsServiceRevenue=$770,000$750,000=$20,000\begin{align*} FTA\_2018 &= Collections \:-\: Service\:Revenue\\ &= \$770,000 - \$750,000 \\ &= \$\textbf{20,000} \end{align*}

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