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Problem 2: Deferred Income Taxes (18 points) Baker Company has the following information relating to their income taxes for a three- year period: Year
Problem 2: Deferred Income Taxes (18 points) Baker Company has the following information relating to their income taxes for a three- year period: Year 1 Year 2 Year 3 GAAP Net Income 2,000 2.000 2,100 Before Odd Items Non-Deductible 15 20 10 Expenses (note 1) Depreciation 25 25 25 Expense (note 2) Rents Collected in 20 201 20 Advance (note 3) GAAP Net Income 2,010 2,015 2,105 Before Tax The tax rate is expected to be 20% for all years. . Note 1: These amounts represent expenses that will never be deductible on the tax return. Note 2: The company purchased an asset for $100 in Year 1. The entire amount was deductible on the tax return in year 1. For GAAP, the company was using straight-line over four years. Note 3: The company collected revenue in advance in the amount of $80 in year 1. For GAAP purposes, the income will be allocated evenly over the next four years. The entire $80 is taxable in year 1. Required Calculate taxable income for all three years Calculate income tax payable for all three years Calculate the ending balance in deferred tax liability for all three years . Calculate the ending balance in the deferred tax asset for all three years Calculate the income tax expense for all three years . . Prepare the journal entry to record income tax expense for year 2
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