Question

Alexa Inc. purchased equipment in 2018 for $70,000 with no residual value. On December 31, 2020, accumulated depreciation using the straight-line method for financial reporting was $21,000. For tax purposes, Alexa uses MACRS depreciation resulting in $49,840 in accumulated depreciation for tax purposes on December 31, 2020. Taxable income was $140,000 for 2020 and the company's tax rate is 25%.

a. Determine the GAAP basis of equipment (net) on December 30, 2020.

Equipment, net (GAAP basis)

Answer

b. Determine the tax basis of equipment on December 30, 2020.

Equipment, net (tax basis)

Answer

c. Assuming a deferred tax liability balance of $6,860 on December 31, 2019, record income tax expense for 2020.

Note: List multiple debits (when applicable) in alphabetical order and list multiple credits (when applicable) in alphabetical order.

Date	Account Name	Dr.	Cr.
Dec. 31, 2020	AnswerDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A	Answer	Answer
	AnswerDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A	Answer	Answer
	AnswerDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A	Answer	Answer

Answer 1

Part 1

Origional cost of equipment	70,000
Less: Accumulated depreciation using the straight-line method	21,000
Equipment, net (GAAP basis)	49,000

Part 2

Origional cost of equipment	70,000
Less: Accumulated depreciation using the MACRS depreciation	49,840
Equipment, net (tax basis)	20,160

Part 3

	Equipment, net (GAAP basis)	49,000
Less:	Equipment, net (tax basis)	20,160
	Temporary difference	28,840
Multiply:	Tax rate	25%
	Deferred tax liability, ending	7,210
	Deferred tax liability, ending	7,210
	Deferred tax liability, beginning	6,860
	Change in Deffered tax liability	350

Date	General Journal	Debit	Credit
Dec 31, 2020	Income tax expense	35,350
	Deferred Tax Liability		350
	Income tax payable (140000*25%)		35,000
	To record income tax expense.