Catherine Duffy: After all those fun and games calculating our current tax and deferred tax,
now we can wrap things up by doing the journal entries that need to be done for 2016 and
taking a look at what the income statement would look like.
The 2016 journal entries for taxes are made up from the rough work we did in the current
and the deferred and the step one and the step two calculations.
From the step one calculation, we're going to record the current tax expense, which is
a debit to an account.
Current income tax expense, $14,000 is what we calculated, and a credit to income tax
payable, $14,600.
That would be to record current tax expense for the year.
From the step two calculation, the deferred tax calculation, we had a deferred tax expense
that had to be recorded of $975.
The other side of that entry, we're going to get rid of the deferred tax asset that
we had of $600 and set up the deferred tax liability that we need of $375 on the balance
sheet.
What have we got?
In the income statement, we're going to have these two values.
They're going to go onto the income statement, and we're going to show what the statement
of earnings or income statement is going to look like for 2016.
For the balance sheet, we've got this value that's gone into the current liabilities,
and we've got this value sitting in the long-term liabilities.
This value has been made to go to zero, because it was an asset of $600, and we've gotten
rid of it.
We've got a long-term liability of $375 and we've got a current liability of $14,600 on
our balance sheet.
On our income statement, you're got just your normal income statement, sales less expenses
and so on.
We'll come down to to this: net income before tax is $80,000.
The tax entries is going to be made up of two items.
You've got the current tax from this journal entry of $14,600 and we've got the deferred
tax of $975 expense, so the total tax expense is $15,575.
Net income before taxes less the total tax expense, which is made up of both pieces,
the current and the deferred, $15,575, will give you a net income of $64,425 after taxes.
That is the completion of the tax accounting for 2016 for this company.
Thanks for watching this video series on income tax accounting.
I hope it was of some value to you.
Stay tuned for another video series on loss carry-backs and loss carry-forwards if you're
interested.
Thanks for your attention and see you soon.