KPMG Accounting for Income Taxes Handout 1?

KPMG Accounting for income taxes Student handout 1 Deferred taxes exercise 1 ABC Company (ABC) had $20,000 in income before depreciation and municipal bond interest. ABC-U.S. GAAP Year 1 Year 2 Year 3 Year 4 20,000 20,000 20,000 Income before depreciation and municipal bond interest 20,000 Municipal bond interest Depreciation expense Income before income taxes Current and deferred tax expense Net income ABC-Tax Year 1 Year 2 Year 3 Year 4 20,000 Income before depreciation and municipal bond interest 20,000 20,000 20,000 Municipal bond interest Depreciation expense Taxable income Tax rate Current tax expense - Owe to IRS! - ABC purchased equipment with a four-year estimated useful life for $12,000 and uses straight-line depreciation for book purposes. For income tax purposes, the equipment is eligible for 100% expensing. - ABC had municipal bond interest of $2,000 each year. Current tax rate is 25%. KPMG Deferred taxes exercise 1 U.S. GAAP income tax expense is a COMBO of now expense and later expense. Complete the schedule calculating equipment differences between tax basis and the U.S. GAAP carrying amount: U.S. GAAP carrying amount Deferred tax - balance sheet Deferred tax- income statement Year Tax basis Temporary difference 1 9,000 0 2 6,000 0 3 3,000 0 4 0 0 Prepare the journal entry for each year: Dr. Income tax expense - NOW and LATER amount reported on 1/S Dr. or Cr. Deferred tax liability - LATER amount reported on B/S at currently enacted tax rate Cr. Income tax payable - NOW current amount due on Form 1120 Year 1 Account title Debit Credit Year 2 Account title Debit Credit Year 3 Account title Debit Credit Year 4 Account title Debit Credit KPMG Deferred taxes exercise 1 Complete the schedule below to reflect the activity during each year and the balance at the end of each year for ABC's deferred tax liability on the balance sheet: Deferred tax liability Debit Credit 0 Balance Year 4 Provide ABC's income tax expense on the income statement for U.S. GAAP: Year 1-$ Year 2-$ Year 3-$ Year 4-$ KPMG Accounting for income taxes Student handout 1 Deferred taxes exercise 1 ABC Company (ABC) had $20,000 in income before depreciation and municipal bond interest. ABC-U.S. GAAP Year 1 Year 2 Year 3 Year 4 20,000 20,000 20,000 Income before depreciation and municipal bond interest 20,000 Municipal bond interest Depreciation expense Income before income taxes Current and deferred tax expense Net income ABC-Tax Year 1 Year 2 Year 3 Year 4 20,000 Income before depreciation and municipal bond interest 20,000 20,000 20,000 Municipal bond interest Depreciation expense Taxable income Tax rate Current tax expense - Owe to IRS! - ABC purchased equipment with a four-year estimated useful life for $12,000 and uses straight-line depreciation for book purposes. For income tax purposes, the equipment is eligible for 100% expensing. - ABC had municipal bond interest of $2,000 each year. Current tax rate is 25%. KPMG Deferred taxes exercise 1 U.S. GAAP income tax expense is a COMBO of now expense and later expense. Complete the schedule calculating equipment differences between tax basis and the U.S. GAAP carrying amount: U.S. GAAP carrying amount Deferred tax - balance sheet Deferred tax- income statement Year Tax basis Temporary difference 1 9,000 0 2 6,000 0 3 3,000 0 4 0 0 Prepare the journal entry for each year: Dr. Income tax expense - NOW and LATER amount reported on 1/S Dr. or Cr. Deferred tax liability - LATER amount reported on B/S at currently enacted tax rate Cr. Income tax payable - NOW current amount due on Form 1120 Year 1 Account title Debit Credit Year 2 Account title Debit Credit Year 3 Account title Debit Credit Year 4 Account title Debit Credit KPMG Deferred taxes exercise 1 Complete the schedule below to reflect the activity during each year and the balance at the end of each year for ABC's deferred tax liability on the balance sheet: Deferred tax liability Debit Credit 0 Balance Year 4 Provide ABC's income tax expense on the income statement for U.S. GAAP: Year 1-$ Year 2-$ Year 3-$ Year 4-$