Sachs Widget Emporium sells super premium widgets to discriminating consumers. Sachs' widgets are so righteous; they come with a warranty promising a full refund if any defects are found for two years after the purchase date. Following the matching principle, Sachs expenses estimated warranty costs in the year of sale for financial purposes. Following tax laws, on the tax returns Sachs deducts warranty costs in the year paid. In 2019, Sachs recognized $170,000 of warranty expense for financial accounting purposes (all from a sale that occurred on December 31, 2019). Actual warranty costs paid were $64,000 in 2020 and $106,000 in 2021. No warranties were offered after 2019 but warranties from all 2019 sales were honored through 2021. Other financial income, before considering warranty costs, was $655,000 per year. The tax rate was 30% in all years. b C d through 9 Does the temporary difference arise from an underlying asset or an underlying liability? Which one (name the asset or liability)? Is it on the financial books, the tax records or both? Remember, Underlying adjunct assets and underlying contra-liabilities are considered underlying assets and underlying adjunct liabilities and underlying contra-assets are considered underlying liabilities. Please type your answer below. (6 points) A 1 2 4 5 6 a b d through 9 Requirement b. What is the Income Tax Payable in 2019, 2020 and 2021? Show all work in the table below for full credit. (6 points) D E G Description of item F 2020 1 2019 2021 2 3 3 4 5 6 7 Exit d through f 9 Requirement c. Do we have a deferred tax asset or a deferred tax liability? Explain why (as we practiced in class). Please type your answer below.(8 points) Show less 1 2 3 4 5 6 7 8 a 10 11 12 13 14 15 Show less 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 d through f D 1 2 B E d. What is the cumulative temporary difference in 2019, 2020 and 2021? Show all work for full credit. Be careful with signs. Please show all work in the table below. Indicate in column the row that answers your question by typing in that row. (3 points) e. Compute the ending balance of the Deferred Tax Asset or Liability account in 2019, 2020 and 2021. Show all work for full credit. Be careful with signs. Please show all work in the table below. Indicate in column A the row that answers your question by typing "e" in that row. (3 points) . Using the method I taught in class, calculate the Income Tax Expense in 2019, 2020 and 2021. Show all work for full credit. (hint--there are two steps required to get from the answer for part e. to the answer for part f.) Please show all work in the table below. Indicate in column A the row that answers your question by typing "' in that row. (6 points) Description of item 2019 2020 2021 3 4 5 6 7 8 9 10 11 12 13 14 a b d through f 9 g. Give the income tax journal entries for the company for 2019 and 2020 only. Please answer this question in the space below. (3 points) D B Account C Debit 1 Year Credit 2 4 5 6 7 8 9 10 Sachs Widget Emporium sells super premium widgets to discriminating consumers. Sachs' widgets are so righteous; they come with a warranty promising a full refund if any defects are found for two years after the purchase date. Following the matching principle, Sachs expenses estimated warranty costs in the year of sale for financial purposes. Following tax laws, on the tax returns Sachs deducts warranty costs in the year paid. In 2019, Sachs recognized $170,000 of warranty expense for financial accounting purposes (all from a sale that occurred on December 31, 2019). Actual warranty costs paid were $64,000 in 2020 and $106,000 in 2021. No warranties were offered after 2019 but warranties from all 2019 sales were honored through 2021. Other financial income, before considering warranty costs, was $655,000 per year. The tax rate was 30% in all years. b C d through 9 Does the temporary difference arise from an underlying asset or an underlying liability? Which one (name the asset or liability)? Is it on the financial books, the tax records or both? Remember, Underlying adjunct assets and underlying contra-liabilities are considered underlying assets and underlying adjunct liabilities and underlying contra-assets are considered underlying liabilities. Please type your answer below. (6 points) A 1 2 4 5 6
