Revenues and expenses, excluding depreciation, that Ralph Corporation reported for 2014, 2015, and 2016 for both financial reporting and income tax purposes are shown at the top of Exhibit 2. Assume the company bought new equipment, with zero salvage value, costing $75,000 on January 1, 2014. Ralph used straight-line depreciation, over a three-year service life for financial reporting. However, for tax purposes, Ralph reported deprecation of $40,000 in 2014, $20,000 in 2015, and $15,000 in 2016. These figures are also shown in Exhibit 2. The income tax rate is 30 percent.

Required:

A) How much income tax did Ralph pay for the year ending December 31, 2015? _____________

B) What was the income tax expense on Ralph Enterprises income statement for the year ending December 31, 2015? _________________

C) What is the dollar amount of the deferred tax asset or deferred tax liability shown on Ralph Enterprises balance sheet on December 31, 2015? __________________________

D) Was the amount in c. above (circle one) (a) deferred tax asset or (b) deferred tax liability?

		PROBLEM 2
		RALPH ENTERPRISES
		Deferred Tax Problem
			2014	2015	2016	Total
		Taxable income, financial reporting	$150,000	$150,000	$150,000	$450,000
		Taxable income, IRS	$350,000	$50,000	$50,000	$450,000
		Income tax expense	$45,000	$45,000	$45,000	$135,000
		Income tax payable	$105,000	$15,000	$15,000	$135,000
		Current deferred tax	$60,000	($30,000)	($30,000)	$0
		Deferred tax asset	$60,000	$30,000	$0
		Income tax paid	$105,000	$15,000	$15,000
		Income tax expense	45,000	45,000	45,000
			60,000	(30,000)	(30,000)	-
		Deferred tax asset on balance sheet	$60,000	$30,000	$0
		Income tax paid in 2015		$15,000
		Income tax expense 2015		$45,000
		Deferred tax asset		$30,000