The long-term liabilities section of CPS Transportation's December 31, 2020, 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 15 remaining lease payments of $32,000 each, due annually on January 1: Lease liability Less: current portion $243, 395 7,660 $235,735 The incremental borrowing rate at the inception of the lease was 11% and the lessor's implicit rate, which was known by CPS Transportation, was 10%. b. A deferred income tax liability due to a single temporary difference. The only difference between CPS Transportation's taxable income and pretax accounting income is depreciation on a machine acquired on January 1, 2020, for $500,000. The machine's 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 2021 through 2024 is as follows: b. A deferred income tax liability due to a single temporary difference. The only difference between CPS Transportation's taxable income and pretax accounting income is depreciation on a machine acquired on January 1, 2020, for $500,000. The machine's 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 2021 through 2024 is as follows: Year 2021 2022 2023 2024 MACRS Depreciation $152,000 76,000 66,000 56,000 Straight-line Depreciation $100,000 100,000 100,000 100,000 Difference $ 52,000 (24,000) (34,000) (44,000) The enacted federal income tax rates are 20% for 2020 and 25% for 2021 through 2024. CPS had a deferred tax liability of $12,500 as of December 31, 2020. For the year ended December 31, 2021, CPS's income before income taxes was $900,000. On July 1, 2021, CPS Transportation issued $600,000 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 Transportation's income tax expense and net income for the year ended December 31, 2021. 2. Determine CPS Transportation's interest expense for the year ended December 31, 2021. 3. Prepare the long-term liabilities section of CPS Transportation's December 31, 2021, balance sheet. Determine CPS Transportation's income tax expense and net income for the year ended December 31, 2021. (Enter your answers in whole dollars.) CPS TRANSPORTATION Income Tax Expense and Net Income For the Year Ended December 31, 2021 Income before income taxes $900,000 Income tax expense: Current $ 212,000 Deferred 20,800 232,800 Net income $667,200 Determine CPS Transportation's interest expense for the year ended December 31, 2021. (Do not round intermediate calculations. Enter your answers in whole dollars.) CPS TRANSPORTATION Calculation of Interest Expense For the Year Ended December 31, 2021 Lease obligation 23,574 Bonds payable 562,613 Total interest expense 586, 187 $ Prepare the long-term liabilities section of CPS Transportation's December 31, 2021, balance sheet. (Do not round intermediate calculations. Enter your answers in whole dollars.) CPS TRANSPORTATION Long-Term Liabilities Section of Balance Sheet December 31, 2021 Long-term liabilities: Lease liability $ 235,735 Less: current portion 8,426 $ 227,309 Bonds payable, net 600,000 Deferred tax liability 54,000 Total long-term liabilities $ 881,309
