The Summerlin Company reported pretax accounting income on its income statement as follows: 2021 $425,000
2022 345,000
2023 415,000
2024 455,000

Included in the income of 2021 was an installment sale of property in the amount of $60,000. However, for tax purposes, Summerlin reported the income in the year cash was collected. Cash collected on the installment sale was $24,000 in 2022, $30,000 in 2023, and $6,000 in 2024. Included in the 2023 income was $25,000 interest from investments in municipal governmental bonds. The enacted tax rate for 2021 and 2022 was 40%, but during 2022, new tax legislation was passed reducing the tax rate to 25% for the years 2023 and beyond.

Required:
Prepare the year-end journal entries to record income taxes for the years 2021-2024.

The Summerlin Company

Journal Entries:

December 31, 2021:

Debit Income Tax Expense $170,000

Credit Income Tax Payable $146,000

Credit Deferred Tax Liability $24,000

To record the income tax expense for the year.

December 31, 2022:

Debit Income Tax Expense $138,000

Debit Deferred Tax Asset $9,600

Credit Income Tax Payable $147,600

To record income tax expense for the year.

December 31, 2023:

Debit Income Tax Expense $103,750

Debit Deferred Tax Asset $7,500

Credit Income Tax Payable $111,250

To record income tax expense for the year.

December 31, 2024:

Debit Income Tax Expense $113,750

Debit Deferred Tax Asset $1,500

Credit Income Tax Payable $115,250

To record income tax expense for the year.

Explanation:

a) Data and Calculations:

Pretax Accounting Income:

Year     Accounting   Temporary       Taxable     Tax Rate   Income Tax

               Income      Differences      Income

2021     $425,000       -$60,000    $365,000       40%        $146,000

2022      345,000         +24,000      369,000       40%           147,600

2023       415,000         +30,000      445,000       25%            111,250

2024      455,000           +6,000       461,000       25%           115,250

Year     Tax Expense   Income Tax   Differences

2021     $170,000     $146,000          $24,000   DTL

2022      138,000        147,600              9,600   DTA

2023      103,750         111,250               7,500   DTA

2024       113,750        115,250               1,500    DTA

Total Deferred Tax Liability = $24,000

Total Deferred Tax Assets =     18,600

Unrecoverable DTA =              $5,400