Southern Atlantic Distributors began operations in January 2021 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2021, 30% in 2022, and 20% in 2023. Pretax accounting income for 2021 was $400,000, which includes interest revenue of $48,000 from municipal governmental bonds. The enacted tax rate is 25%. Assuming no differences between accounting income and taxable income other than those described above. Required:
Complete the following table given below and prepare the journal entry to record income taxes in 2021.
Tax Rate % Tax $ Recorded as:
Pretax accounting
income 300
Permanent difference 40
Income subject to
taxation 340 25% 85 Income tax expense
Temporary difference 10 25% 2.5 Deferred tax liability
Income taxable in
current year 350 25% 87.5 Income taxes payable