The long-term liabilities section of CPS Transportations December 31, 2018, 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 12 remaining lease payments of $16,000 each, due annually on January 1:

Lease liability	$	137,844
Less: current portion		3,594
	$	134,250

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, 2015, for $580,000. 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 2016 through 2019 is as follows:

	MACRS			Straight-line
Year	Depreciation			Depreciation			Difference
2016	$	182,000		$	116,000		$	66,000
2017		91,000			116,000			(25,000	)
2018		81,000			116,000			(35,000	)
2019		71,000			116,000			(45,000	)

The enacted federal income tax rates are 35% for 2015 and 40% for 2016 through 2019. For the year ended December 31, 2016, CPSs income before income taxes was $980,000.

On July 1, 2016, CPS Transportation issued $680,000 of 9% bonds. The bonds mature in 10 years and interest is payable each January 1 and July 1. The bonds were issued at a price to yield the investors 10%. 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, 2016.

CPS transportation

income tax expense and net income

for year ended december 31 2016

income before income taxes

income tax expense

currrent

deffered

net income

2.

Determine CPS Transportations interest expense for the year ended December 31, 2016.

CPS transportation

income tax expense and net income

for year ended december 31 2016

Capital lease obligation interest

bonds paybable interest

total interest expense

3.	Prepare the long-term liabilities section of CPS Transportation's December 31, 2016, balance sheet.

CPS transportation

income tax expense and net income

for year ended december 31 2016

Long term liabilities

lease liability

less current portion

bonds payable, net

deferred income tax liability

total long term liabilities