Q10:Explain how Ryman Healthcare has an Income tax expense of $3.4m (See Ryman Healthcare’s 2019 Annual Report – Consolidated income Statement, page 80) and yet it actually paid in cash no tax that year (see Ryman Healthcare’s 2019 Annual Report – Consolidated statement of cash flows, page 83). What would be the journal entries to record its Income tax expense?

A:

Ryman Healthcare had zero assessable corporate income tax in 2019. All of Ryman Healthcare’s Income tax expense of $3.4m is Deferred tax expense (See Ryman Healthcare’s 2019 Annual report footnote 4).

Ryman Healthcare’s Deferred tax expense of $3.4m is based on the effect of its activities during the past year on its expected taxable earnings (and thus tax to be paid) in future years.

The journal entries for this are:

DR Income tax expense             $3.4m

       CR Deferred tax liability                   $3.4m

(Deferred tax liability increased due to increased timing differences)