4. Multiple temporary differences. (20 points)

The following information is available for the first three years of operations for Cooper Company:

1. Year Taxable Income

2020 $500,000

2021 375,000

2022 400,000

2. On January 2, 2020, heavy equipment costing $800,000 was purchased. The equipment had a life of 5 years and no salvage value. The straight-line method of depreciation is used for book purposes and the tax depreciation taken each year is listed below:

Tax Depreciation

2020 2021 2022 2023 Total

$264,000 $360,000 $120,000 $56,000 $800,000

3. On January 2, 2021, $360,000 was collected in advance for rental of a building for a three-year period. The entire $360,000 was reported as taxable income in 2021, but $240,000 of the $360,000 was reported as unearned revenue at December 31, 2021 for book purposes.

4. The enacted tax rates are 20% for all years.

Instructions

1. Prepare a schedule comparing depreciation for financial reporting and tax purposes.
2. Determine the deferred tax (asset) or liability at the end of 2020.

Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2021.