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The following information is available for the first three years of operations for Taylor Company: 1. Year Taxable Income 2006 500,000 2007 330,000 2008 400,000

The following information is available for the first three years of operations for Taylor Company:

1. Year Taxable Income

2006 500,000

2007 330,000

2008 400,000

2. On January 2, 2017, heavy equipment costing 600,000 was purchased. The equipment had

a life of 5 years and no salvage value. The straight-line method of depreciation is used for

book purposes and the tax depreciation taken each year is listed below:

Tax Depreciation

2006 2007 2008 2009 Total

198,000 270,000 90,000 42,000 600,000

3. On January 2, 2018, 240,000 was collected in advance for rental of a building for a threeyear

period. The entire 240,000 was reported as taxable income in 2018, but 160,000 of

the240,000 was reported as unearned revenue at December 31, 2018 for book purposes.

4. The enacted tax rates are 40% for all years.

Instructions

(a) Prepare a schedule comparing depreciation for financial reporting and tax purposes.

Depreciation for Financial Depreciation for Temporary
Year Reporting Purposes Tax Purpose Difference
2017
ar Reporting Purposes Tax Purpose Difference
2017 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
2018 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
2019 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
2020 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
2021 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 -0- 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 -0-

(b) Determine the deferred tax (asset) or liability at the end of 2017.

Future taxable(deductible) amounts: 2018 2019 2020 2021 Total
Depreciation 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000

(c) Prepare a schedule of future taxable and (deductible) amounts at the end of 2018.

Future taxable(deductible) amounts: 2008 2009 2010 Total
Deprectiation 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
Rent 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000

(d) Prepare a schedule of the deferred tax (asset) and liability at the end of 2018.

Temporary Differences Future Taxable(Deductible)Amounts Tax Rate Deferred Tax(Asset) Liability
Depreciation 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 40% 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
Rent 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 40% 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
Totals 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000

(e) Compute the net deferred tax expense (benefit) for 2018.

Deferred tax asset at end of 2018 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
Deferred tax asset at beginning of 2018 -0-
Deferred tax(benefit) 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
Deferred tax liability at end of 2018 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
Deferred tax liability at beginning of 2018 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
Deferred tax expense 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
Deferred tax (benefit) 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
Deferred tax expense 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000
Net deferred tax benefit for 2018 68,00042,00091,200(150,000)132,000(4,000)600,000(64,000)(80,000)(78,000)30,000128,00064,000(160,000)31,200120,000198,00078,00090,00060,000270,000228,000

(f) Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2018.

Income Tax Expense
Deferred Tax Asset
Deferred Tax Liability
Income Tax Payable

.

ACTG312

(d) Prepare a schedule of th

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