During 2010. Kirkpatrick Corporation purchased a new electric generator for $2,750,000. The generator is expected to have a five-year useful life and will be disposed of in 2015 without any anticipated residual value. The company uses straight-line depreciation on its income statement. The company will charge $275,000 depreciation in 2010 and 2015 and $550,000 per year in 2011-2014, inclusive. For tax purposes, the generator falls into a special five-year cost recovery class. The cost recovery percentage rates applicable to the generator are as follows (i.e., 20 percent of the cost is deducted for tax purposes in 2010):
YearCost Recovery Class Rate
2010 ............................20.0%
2011 ............................ 32.0
2012 ............................ 19.2
2013 ............................ 11.5
2014 ............................ 11.5
2015 ............................ 5.8
Kirkpatrick expects its income before depreciation and income taxes to be $ 1,500,000 per year for years 2010-2015. The combined federal and state income tax rate is 40 percent.
Required:
Prepare a schedule showing
a. Each of the six years' income tax payments, starting in 2010.
b. Each year's provision for income taxes.
c. The balance in the deferred tax account at the end of each year. (Assume a zero beginning balance.)
As you develop your schedule, for each year make a posting to the following T accounts: Cash (for payments), Income Tax Expense, and Deferred Taxes. In what year does the temporary difference reverse?