Sachs Widget Wholesalers sells widgets to retailers for credit (on account). As is true for all firms with Receivables, some of Sachs clients default on their accounts. Hence, there are bad debts. Following the matching principle, Sachs uses the Allowance Method and expenses estimated bad debts in the year of sale for financial reporting purposes. Following tax laws, on the tax returns, Sachs uses the Direct Write-Off Method and deducts bad debt costs in the year an account is written off In 2019, Sachs' first year of operations, Sachs recognized $90,000 of bad debt expense for financial accounting purposes (all from sales that occurred on December 31, 2019). Actual account defaults, and hence, write-offs, were for $38,000 in 2020 and $52,000 in 2021 No credit sales took place after 2019. Other financial income, before considering bad-debt expense, was $530,000 per year. The tax rate was 40% in all years. b C d through f 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) Show less 1 2 3 4 5 6 Other financial income, before considering bad-debt expense, was $30.000 per year. The tax rate was 40% in all years. b C d throught 9 h 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) A B D E G F 2020 1 Description of item 2019 2021 2 3 4 5 6 7 8 b d through f 9 h 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 A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 e b C d through f 9 h 1 2 3 A B D 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 A the row that answers your question by typing "d" 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) f. 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 parte 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 4 5 6 7 8 9 10 11 12 13 14
