Q1 PurpleGold Company began operations on 1 1 16 The company has a 12 31 year end for book and tax purposes, and has a marginal tax rate of 30 for all years Book Tax differences are as follows A depreciable asset that cost $3,000 was purchased on 1 1 16 The asset has an estimated useful life of 5 years and no residual value for book purposes Book and tax depreciation were computed as follows 2016 2017 2018 2019 2020 Book depreciation $600 $600 $600 $600 $600 Tax depreciation 990 810 600 390 210 An estimated lawsuit liability of $2,500 was accrued at 12 31 16 for books The expected final settlement date (payment) is 12 31 19 At that point, the expense will be tax deductible Rent income collected in advance at 12 31 16 was $400 and will be reported as income across 2017 and 2018 (evenly) for books For tax purposes, prepaid rent income must be reported in the period collected Required Using the reconciliation schedule on the next page, a Analyze the income tax consequences of the above to determine a) whether each difference is permanent or temporary and b) whether it involves a deferred tax liability or a deferred tax asset b for 2016 determine taxable income and current taxes payable c for 2017 determine taxable income and current taxes payable Prepare the journal entry to record income tax at 12 31 16 and 12 31 17 Use any (not all) of the following account names Income Tax Expense, Deferred Tax Liability (DTL), Deferred Tax Asset (DTA), Income Taxes Payable, Cash, Depreciation Expense, Accrued Liability, Operating Expenses, Rental Income, Gain on Sale of Equipment, and Accounts Receivable

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Q1. PurpleGold Company began operations on 1/1/16. The company has a 12/31 year-end for book and tax purposes, and has a marginal tax rate of

Q1. PurpleGold Company began operations on 1/1/16. The company has a 12/31 year-end for book and tax purposes, and has a marginal tax rate of 30% for all years. Book/Tax differences are as follows:

A depreciable asset that cost $3,000 was purchased on 1/1/16. The asset has an estimated useful life of 5 years and no residual value for book purposes. Book and tax depreciation were computed as follows.

2016 2017 2018 2019 2020

Book depreciation $600 $600 $600 $600 $600

Tax depreciation 990 810 600 390 210

An estimated lawsuit liability of $2,500 was accrued at 12/31/16 for books. The expected final settlement date (payment) is 12/31/19. At that point, the expense will be tax deductible.

Rent income collected in advance at 12/31/16 was $400 and will be reported as income across 2017 and 2018 (evenly) for books. For tax purposes, prepaid rent income must be reported in the period collected.

Required

Using the reconciliation schedule on the next page,

a/ Analyze the income tax consequences of the above to determine a) whether each difference is permanent or temporary and b) whether it involves a deferred tax liability or a deferred tax asset.

b/ for 2016: determine taxable income and current taxes payable.

c/ for 2017: determine taxable income and current taxes payable.

Prepare the journal entry to record income tax at 12/31/16 and 12/31/17. Use any (not all) of the following account names: Income Tax Expense, Deferred Tax Liability (DTL), Deferred Tax Asset (DTA), Income Taxes Payable, Cash, Depreciation Expense, Accrued Liability, Operating Expenses, Rental Income, Gain on Sale of Equipment, and Accounts Receivable.