Question
How do you calculate the temporary difference in the problem below? Southern Atlantic Distributors began operations in January 2021 and purchased a delivery truck for
How do you calculate the temporary difference in the problem below?
Southern Atlantic Distributors began operations in January 2021 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 45% of cost in 2021, 30% in 2022, and 25% in 2023. Pretax accounting income for 2021 was $600,000, which includes interest revenue of $68,000 from municipal governmental bonds. The enacted tax rate is 25%. Assuming no differences between accounting income and taxable income other than those described above:
I understand how to arrive at the solution for the problem, I just don't understand how the temporary difference is calculated.
Required 1 Calculation Required 1 GJ Required 2 Complete the following table given below to record income taxes in 2021. (Amounts to be deducted should be minus sign. Enter your answers in whole dollars.) Tax Rate % Tax $ Recorded as: Pretax accounting income Permanent difference $ 600,000 $ (68,000) $ 532,000 25% $ 133,000 Income tax expense Income subject to taxation Temporary difference $ (8,000) 25% $ (2,000) Deferred tax liability Income taxable in current year $ 524,000 25% $ 131,000 Income tax payable
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started