Recording and Reporting Temporary Difference

Staples Corporation would have had identical pretax income on both its income tax returns and its income statements for Year $1$ through Year $4$ except for a depreciable asset that cost $$360,000.$ The asset was depreciated for income tax purposes at the following amounts: Year $1,$ $$144,000$; Year $2,$ $$108,000$; Year $3,$ $$72,000$; and Year $4,$ $$36,000.$ However, for accounting purposes the straight$-$line method was used, resulting in $$90,000$ per year. The accounting and tax periods both end December $31.$ There were no deferred taxes at the beginning of Year $1.$ The depreciable asset has a four$-$year estimated life and no residual value. The tax rate for each year was $25\%.$ Pretax GAAP income for each of the four years follows.

Year Pretax GAAP Income

Year $1$ $$690,000$

Year $2750,000$

Year $3720,000$

Year $4720,000$

Required

Schedules

Journal Entries

Financial Statement Presentation

a$.$ Compute the increase to income tax payable on December $31$ of Year $1,$ Year $2,$ Year $3,$ and Year $4.$

Dec. $31,$ Year $1$ Dec. $31,$ Year $2$ Dec. $31,$ Year $3$ Dec. $31,$ Year $4$

Taxable income Answer

$636,000$

Answer

$732,000$

Answer

$738,000$

Answer

$774,000$

Tax rate $25\%25\%25\%25\%$

Income tax payable increase Answer

$159,000$

Answer

$183,000$

Answer

$184,500$

Answer

$193,500$

b$.$ Prepare a schedule to compute the deferred tax balance on December $31$ of Year $1,$ Year $2,$ Year $3,$ and Year $4.$

$$Note: Do not use negative signs with your answers.

Year $1$ Year $2$ Year $3$ Year $4$

GAAP basis of depreciable asset Answer

$270,000$

Answer

$180,000$

Answer

$90,000$

Answer

$0$

Tax basis of depreciable asset Answer

$216,000$

Answer

$108,000$

Answer

$36,000$

Answer

$0$

Difference between GAAP and tax bases Answer

$54,000$

Answer

$72,000$

Answer

$54,000$

Answer

$0$

Tax rate $25\%25\%25\%25\%$

Answer

Deferred tax liability, ending balance

Answer

$13,500$

Answer

$18,000$

Answer

$13,500$

Answer

$0$

Please answer all parts of the question.