Dixon recognizes income for tax purposes

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Dixon Development began operations in December 2013. When lots for industrial development are sold, Dixon recognizes income for financial reporting purposes in the year of the sale. For some lots, Dixon recognizes income for tax purposes when collected. Income recognized for financial reporting purposes in 2013 for lots sold this way was $12 million, which will be collected over the next three years. Scheduled collections for 2014-2016 are as follows:

2014 $ 4 million
2015 5 million
2016 3 million
$12 million
Pretax accounting income for 2013 was $16 million. The enacted tax rate is 40%.

Required:
1. Assuming no differences between accounting income and taxable income other than those described above, prepare the journal entry to record income taxes in 2013.
2. Suppose a new tax law, revising the tax rate from 40% to 35%, beginning in 2015, is enacted in 2014, when pretax accounting income was $15 million. Prepare the appropriate journal entry to record income taxes in 2014.
3. If the new tax rate had not been enacted, what would have been the appropriate balance in the deferred tax liability account at the end of 2014? Why?

Reference no: EM13880259

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