In: Accounting
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.
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 |