A plant asset purchased by Krest Inc. for $700,000 late in Year 1 is to be...
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A plant asset purchased by Krest Inc. for $700,000 late in Year 1 is to be depreciated as follows. Year Tax Depreciation GAAP Depreciation Year 2 $280,000 $140,000 Year 3 210,000 140,000 Year 4 140,000 140,000 Year 5 Year 6 70,000 140,000 0 $700,000 140,000 $700,000 In Year 3, taxable income is $3,150,000, and the tax rate is 25%. Recently enacted tax rates follow: Year 4: 25%; Year 5: 30%; and Year 6: 30%. The deferred tax liability balance on January 1 of Year 3 is $35,000. Required a. Prepare a schedule to compute the deferred tax balance on December 31 of Year 3. Note: Do not use negative signs with your answers. Year 4 Year 5 Year 6 Total Reversal of difference between GAAP and tax bases $ Tax rate 0 $ 0 $ 0 $ 0 25% 30% 30% Deferred tax liability $ 0 $ 0 S 0 $ 0 b. Calculate the tax basis of the plant asset on December 31 of Year 3 and its reported amount in the financial statements. Tax basis of plant asset, Dec. 31, Year 3: $ 0 GAAP basis of plant asset, Dec. 31, Year 3: $ 0 c. Prepare the journal entry to record income tax expense in Year 3. Date Dec. 31, Year 3 Account Name To record income tax expense Dr. Cr. 0 0 0 0 0 0 A plant asset purchased by Krest Inc. for $700,000 late in Year 1 is to be depreciated as follows. Year Tax Depreciation GAAP Depreciation Year 2 $280,000 $140,000 Year 3 210,000 140,000 Year 4 140,000 140,000 Year 5 Year 6 70,000 140,000 0 $700,000 140,000 $700,000 In Year 3, taxable income is $3,150,000, and the tax rate is 25%. Recently enacted tax rates follow: Year 4: 25%; Year 5: 30%; and Year 6: 30%. The deferred tax liability balance on January 1 of Year 3 is $35,000. Required a. Prepare a schedule to compute the deferred tax balance on December 31 of Year 3. Note: Do not use negative signs with your answers. Year 4 Year 5 Year 6 Total Reversal of difference between GAAP and tax bases $ Tax rate 0 $ 0 $ 0 $ 0 25% 30% 30% Deferred tax liability $ 0 $ 0 S 0 $ 0 b. Calculate the tax basis of the plant asset on December 31 of Year 3 and its reported amount in the financial statements. Tax basis of plant asset, Dec. 31, Year 3: $ 0 GAAP basis of plant asset, Dec. 31, Year 3: $ 0 c. Prepare the journal entry to record income tax expense in Year 3. Date Dec. 31, Year 3 Account Name To record income tax expense Dr. Cr. 0 0 0 0 0 0
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