Question

In: Accounting

The following information is available for the first three years of operations for Wildhorse Company: 1....

The following information is available for the first three years of operations for Wildhorse Company: 1. Year Taxable Income 2020 $610,000 2021 460,000 2022 510,000 2. On January 2, 2020, heavy equipment costing $710,000 was purchased. The equipment had a life of 5 years and no salvage value. The straight-line method of depreciation is used for book purposes and the tax depreciation taken each year is listed below: Tax Depreciation 2020 2021 2022 2023 Total $234,300 $319,500 $106,500 $49,700 $710,000 3. On January 2, 2021, $333,000 was collected in advance for rental of a building for a three-year period. The entire $333,000 was reported as taxable income in 2021, but $222,000 of the $333,000 was reported as unearned revenue at December 31, 2021 for book purposes. 4. The enacted tax rates are 20% for all years.

a-Prepare a schedule comparing depreciation for financial reporting and tax purposes.

b-Prepare a schedule of future taxable and (deductible) amounts at the end of 2021.

c-Prepare a schedule of the deferred tax (asset) and liability at the end of 2021.

d-Compute the net deferred tax expense (benefit) for 2021.

f-Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2021.

Solutions

Expert Solution

A.)

Year Depreciation for financial Reporting Purpose Depreciation for Tax Purpose Temporary Difference
2020 $142,000 $ 234,300 $(92,300)
2021 $142,000 $ 319,500 $(177,500)
2022 $142,000 $ 106,500 $35,500
2023 $142,000 $ 49,700 $92,300
2024 $142,000 -0- $142,000
$710,000 $710,000 0

B.)

2022 2023 2024 Total
Future Taxable Deductible Amound
Depreciation $35,500 $92,300 $142,000 $269,800
Rent $(111,000) $(111,000) - $(222,000)

C.

Future Taxable Deductible Tax Rate Defferd Tax Asset Defferd Tax Liability
Temporary Difference;
Depreciation $269,800 20% $53,960
Rent $(222,000) 20% $(44,400)
Total $(44,400) $53,960

D.

Deferred Tax Asset at end of 2021 $(44,400)
Deferred Tax Asset at Beginning of 2021 0
Deferred Tax (Benefit) $(44,400)
Deferred Tax Liability at end of 2021 $53,960
Deferred Tax Liability at beginning of 2021 $18,460
Deferred Tax Expense $35,500
Deferred Tax (Benefit) $(44,400)
Deferred Tax Expense $35,500
Net Deferred Tax Benefit $(8,900)

Calculation ;

Future Taxable deductible Amount 2021 2022 2023 2024 Total
Deprciation $(177,500) $35,500 $92,300 $142,000 $92,300

Deferred Tax Liability = $92,300 × 20% = $18,460

F.  

Date Account Title and Explanation Debit Credit
Income Tax Expense ($92,000- $8,900) $83,100
Deferred Tax Asset $44,400
Deferred Tax Liability $35,500
Income Taxes Payable ($460,000 × 20%) $92,000

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