Problem 1: Accounting for Income Taxes Abbott Company started business in 2019. It reported $200,000 pretax loss for the first year ended December 31, 2019. There were no differences between pretax loss for financial reporting and tax purposes in 2019. In the second year ended December 31, 2020, the company reported $500,000 pretax financial income. The following differences between pretax financial income and taxable income are noted in 2020: 1. On January 2, 2020, Abbott purchased a new trademark costing $80,000. The trademark is estimated to have a life of 4 years and no salvage value. The straight-line method of amortization is used for book/financial reporting purpose. Amortization for tax purpose each year is estimated below: Tax Amortization 2021 2022 $36,000 $12,000 2020 $26,400 Total 2023 $5,600 $80,000 2. On January 2, 2020, $360,000 was collected in advance for rental of a building for a three-year period. The entire $360,000 was reported into income for tax purpose in 2020, but $240,000 of the $360,000 was reported as unearned revenue at December 31, 2020 for financial reporting purpose. 3. The company is facing a lawsuit. For financial reporting purpose, the company accrued the litigation loss and the related liability of $20,000 because its legal team estimated that it is probable for the company to lose and pay. For tax purpose, the company did not record any litigation loss because the lawsuit would not be settled until 2022. 4. Interest revenue of $30,000 from the Akron municipal bonds is included in Abbott's 2020 pretax financial income. Interest received on municipal obligation should be tax-exempt. The company has the enacted income tax rate of 30% for 2019 and 2020 and 20% in the future years. Instruction: received on municipar obligation should be tax-exempt. The company has the enacted income tax rate of 30% for 2019 and 2020 and 20% in the future years. Instruction: 1. Prepare the journal entry to record the tax benefit from the operation loss of 2019. 2. (1) Calculate depreciation expense for the financial reporting purpose for 2020 to 2023. (2) Calculate the differences of depreciation for financial reporting purpose and tax purpose for 2020 to 2023. (3) Does the difference in 2020 result in deferred tax asset or deferred tax liability? Explain. (4) Calculate the amount of any deferred tax asset or deferred tax liability that resulted from this difference in 2020 (hint: use the following format) Amortization for Financial Reporting. Purpose $ ??? Amortization for Tax Purpose Differences 2020 $ ??? 2021 $26,400 36,100 12,000 2022 2023 5,600 $80,000 Total 3. (1) Calculate the difference in rent revenue for fin reporting purpose and tax purpose in 2020. (2) Does the difference i 2020 result in deferred tax asset or deferred tax liability? Explain. (3) Calculate any deferred tax or deferred tax liability that resulted from this difference in 2020. Amortization for Financial Reporting. Purpose Amortization for Tax Purpose Differences 2020 $ ??? $26,400 $ ??? 2021 36,100 2022 12,000 2023 5,600 Total $80,000 3. (1) Calculate the difference in rent revenue for financial reporting purpose and tax purpose in 2020. (2) Does the difference in 2020 result in deferred tax asset or deferred tax liability? Explain. (3) Calculate any deferred tax or deferred tax liability that resulted from this difference in 2020. 4.(1) Calculate the difference in litigation accrual for financial reporting purpose and tax purpose in 2020. (2) Does the difference in 2020 result in deferred tax asset or deferred tax liability? Explain. (3) Calculate any deferred tax or deferred tax liability that resulted from this difference in 2020. 5. Calculate (1) taxable income, (2) income tax payable and (3)income tax expense in 2020. 6. Prepare the journal entry to record income tax expense, deferred tax asset, deferred tax lability and income tax payable for 2020. 7. Abbot estimated that it is more likely than not that $9,600 of its deferred tax asset will NOT be realized, prepare the journal entry to record the valuation account. Problem 1: Accounting for Income Taxes Abbott Company started business in 2019. It reported $200,000 pretax loss for the first year ended December 31, 2019. There were no differences between pretax loss for financial reporting and tax purposes in 2019. In the second year ended December 31, 2020, the company reported $500,000 pretax financial income. The following differences between pretax financial income and taxable income are noted in 2020: 1. On January 2, 2020, Abbott purchased a new trademark costing $80,000. The trademark is estimated to have a life of 4 years and no salvage value. The straight-line method of amortization is used for book/financial reporting purpose. Amortization for tax purpose each year is estimated below: Tax Amortization 2021 2022 $36,000 $12,000 2020 $26,400 Total 2023 $5,600 $80,000 2. On January 2, 2020, $360,000 was collected in advance for rental of a building for a three-year period. The entire $360,000 was reported into income for tax purpose in 2020, but $240,000 of the $360,000 was reported as unearned revenue at December 31, 2020 for financial reporting purpose. 3. The company is facing a lawsuit. For financial reporting purpose, the company accrued the litigation loss and the related liability of $20,000 because its legal team estimated that it is probable for the company to lose and pay. For tax purpose, the company did not record any litigation loss because the lawsuit would not be settled until 2022. 4. Interest revenue of $30,000 from the Akron municipal bonds is included in Abbott's 2020 pretax financial income. Interest received on municipal obligation should be tax-exempt. The company has the enacted income tax rate of 30% for 2019 and 2020 and 20% in the future years. Instruction: received on municipar obligation should be tax-exempt. The company has the enacted income tax rate of 30% for 2019 and 2020 and 20% in the future years. Instruction: 1. Prepare the journal entry to record the tax benefit from the operation loss of 2019. 2. (1) Calculate depreciation expense for the financial reporting purpose for 2020 to 2023. (2) Calculate the differences of depreciation for financial reporting purpose and tax purpose for 2020 to 2023. (3) Does the difference in 2020 result in deferred tax asset or deferred tax liability? Explain. (4) Calculate the amount of any deferred tax asset or deferred tax liability that resulted from this difference in 2020 (hint: use the following format) Amortization for Financial Reporting. Purpose $ ??? Amortization for Tax Purpose Differences 2020 $ ??? 2021 $26,400 36,100 12,000 2022 2023 5,600 $80,000 Total 3. (1) Calculate the difference in rent revenue for fin reporting purpose and tax purpose in 2020. (2) Does the difference i 2020 result in deferred tax asset or deferred tax liability? Explain. (3) Calculate any deferred tax or deferred tax liability that resulted from this difference in 2020. Amortization for Financial Reporting. Purpose Amortization for Tax Purpose Differences 2020 $ ??? $26,400 $ ??? 2021 36,100 2022 12,000 2023 5,600 Total $80,000 3. (1) Calculate the difference in rent revenue for financial reporting purpose and tax purpose in 2020. (2) Does the difference in 2020 result in deferred tax asset or deferred tax liability? Explain. (3) Calculate any deferred tax or deferred tax liability that resulted from this difference in 2020. 4.(1) Calculate the difference in litigation accrual for financial reporting purpose and tax purpose in 2020. (2) Does the difference in 2020 result in deferred tax asset or deferred tax liability? Explain. (3) Calculate any deferred tax or deferred tax liability that resulted from this difference in 2020. 5. Calculate (1) taxable income, (2) income tax payable and (3)income tax expense in 2020. 6. Prepare the journal entry to record income tax expense, deferred tax asset, deferred tax lability and income tax payable for 2020. 7. Abbot estimated that it is more likely than not that $9,600 of its deferred tax asset will NOT be realized, prepare the journal entry to record the valuation account