1. Assume the following facts for RTY Corporation for Year 1.

RTY recorded $2,300,000 of book income.

At the end of the year, RTY had accumulated depreciation for book purposes of $100,000 and accumulated depreciation for tax purposes of $150,000. As of the beginning of the year, the accumulated book and tax depreciation balances were $80,000 and $120,000, RTY paid premiums for officer life insurance of $50,000

RTY established a warranty reserve of $15,000

RTYs reserve for obsolete inventory decreased from $37,500 to $19,500

Assume a statutory income tax rate of 25 percent

a. What are RTY's permanent items?

Premiums for officer life insurance $50,000

b. What are RTY's changes in temporary differences?

Warranty reserve $15,000 Accumulated depreciation <10,000> Reserve for obsolete inventory (37,500-19,500) $18,000 $23,000 * 25%=$5,750

c. What is RTY's current tax liability?

$2,300,000 + $50,000 + $23,000= 2,373,000 * 25%= $593,250

d. What is the journal entry to record RTY's current tax liability?

Current Tax Expense $593,250

Current Tax Liability $593,250

e. What is the temporary difference related to depreciation at the end of Year 1? Is it a deductible temporary difference or a taxable temporary difference?

Beg. Difference: $80,000 (book)- $120,000(tax)=<$40,000> End. Difference: $100,000 (book)- $150,000(tax)= <$50,000> Current year change: $40,000- $50,000=<$10,000> The temporary difference related to depreciation at the end of Y1 is $10,000. Accumulated depreciation is a taxable temporary difference. (Taxable temporary differences are those on which tax will be charged in the future when the asset (or liability) is recovered (or settled).

f. What amount of deferred tax asset or liability should be recorded at year end related to depreciation?

<$10,000> *25%= <$2,500>

g. What is the journal entry to book deferred tax expense?

Deferred Tax Asset $5,750 Deferred Tax Expense $5,750

h. What is the total provision for income tax?

$593,250 +$5,750=$599,000

Q: Are my answers accurate? If not, can you please give a brief description on why not