Sharrer Inc.s only temporary difference at the beginning and end of 2015 is caused by a ($2)

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Sharrer Inc.’s only temporary difference at the beginning and end of 2015 is caused by a \($2\) million deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable is due in equal installments in 2016 and 2017. The related deferred tax liability at the beginning of the year is \($800\),000. In the third quarter of 2015, a new tax rate of 34% is enacted into law and is scheduled to become effective for 2017. Taxable income for 2015 is \($5\),000,000, and taxable income is expected in all future years.

Instructions

(a) Determine the amount reported as a deferred tax liability at the end of 2015. Indicate proper classification(s).

(b) Prepare the journal entry (if any) necessary to adjust the deferred tax liability when the new tax rate is enacted into law.

(c) Draft the income tax expense portion of the income statement for 2015. Begin with the line “Income before income taxes.” Assume no permanent differences exist.

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Related Book For  book-img-for-question

Intermediate Accounting IFRS Edition

ISBN: 9781118443965

2nd Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

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