Part 2: Scheduling of Deferred Taxes

From the information below, prepare Excel schedules (similar the chapter notes) for 2015 and 2016 to calculate deferred income taxes. Remember, when preparing the 2015 schedule, you do not know about any changes that come about in 2016 (i.e., prepare the 2015 schedule with 2015 information only). Given the following information for Company Z for 2015 (in its first year of calculating deferred income taxes):

1) Company Z has one depreciable asset purchased January 2, 2015. The cost of the asset was $50,000. For financial statement purposes, Company Z is depreciating this asset over 10 years with no salvage value. For tax purposes Company Z is using MACRS, and the asset qualifies as a 5 year asset. Company Z has scheduled out the annual depreciation difference as follows:

Straight-line MACRS

Year (for financial) (for tax) Difference

2015 $5,000 $ 10,000 (5,000)

2016 5,000 16,000 (11,000)

2017 5,000 9,600 (4,600)

2018 5,000 5,760 (760)

2019 5,000 5,760 (760)

2020 5,000 2,880 2,120

2021 5,000 -0- 5,000

2022 5,000 -0- 5,000

2023 5,000 -0- 5,000

2024 5,000 -0- 5,000

2) The company recognized $18,000 for income from its equity method investment in 2015, but received only $12,000 in dividends from this investment (and recognized $12,000 in dividend income for tax purposes).

3) During 2015, Company Z recorded $14,000 as unearned subscription revenue, and plans to deliver the subscriptions in 2016. The IRS rules require that this amount be recognized as revenue in 2015.

4) The company also recognized estimated warranty expense of $6,000 in 2015. The warranties are expected to be paid out in 2017.

5) Pretax financial income was $200,000 in 2015, and a tax rate of 30 percent was enacted for the current and future years.