Question
The long-term liabilities section of CPS Transportations December 31, 2017, balance sheet included the following: (FV of $1, PV of $1, FVA of $1, PVA
The long-term liabilities section of CPS Transportations December 31, 2017, balance sheet included the following: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) a. A lease liability with 13 remaining lease payments of $24,000 each, due annually on January 1:
Lease liability | $ | 179,686 | |
Less: current portion | 7,828 | ||
$ | 171,858 | ||
The incremental borrowing rate at the inception of the lease was 10% and the lessors implicit rate, which was known by CPS Transportation, was 9%. b. A deferred income tax liability due to a single temporary difference. The only difference between CPS Transportations taxable income and pretax accounting income is depreciation on a machine acquired on January 1, 2017, for $460,000. The machines estimated useful life is five years, with no salvage value. Depreciation is computed using the straight-line method for financial reporting purposes and the MACRS method for tax purposes. Depreciation expense for tax and financial reporting purposes for 2018 through 2021 is as follows:
MACRS | Straight-line | ||||||||
Year | Depreciation | Depreciation | Difference | ||||||
2018 | $ | 150,000 | $ | 92,000 | $ | 58,000 | |||
2019 | 75,000 | 92,000 | (17,000 | ) | |||||
2020 | 65,000 | 92,000 | (27,000 | ) | |||||
2021 | 55,000 | 92,000 | (37,000 | ) | |||||
The enacted federal income tax rates are 35% for 2017 and 40% for 2018 through 2021. For the year ended December 31, 2018, CPSs income before income taxes was $860,000. On July 1, 2018, CPS Transportation issued $560,000 of 8% bonds. The bonds mature in 15 years and interest is payable each January 1 and July 1. The bonds were issued at a price to yield the investors 9%. CPS records interest at the effective interest rate. Required: 1. Determine CPS Transportations income tax expense and net income for the year ended December 31, 2018. 2. Determine CPS Transportations interest expense for the year ended December 31, 2018. 3. Prepare the long-term liabilities section of CPS Transportation's December 31, 2018, balance sheet.
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