At December 31, 2020 Company B had one temporary difference (related to depreciation) that resulted in a deferred tax asset of $ 300,000 on its balance sheet. At December 31, 2021, Company B has four temporary differences. Details on the four temporary differences: · Net book value of fixed assets for accounting purposes is $ 500,000 more than the tax value. This will reverse by $ 100,000 in 2022, $ 250,000 in 2023 and $ 150,000 in 2024. · Royalties of $ 600,000 were collected in advance of being earned. They are taxed when received in 2021 but will not be included in accounting income until 2022. · Various expenses totaling $ 500,000 have been accrued for accounting but are not deductible for tax purposes until paid. $ 200,000 of this is to be paid in 2022 and $ 300,000 to be paid in 2023. · Profit on instalment sales were recognized for accounting as earned in 2021 for a total of $ 400,000. However, they are not taxed until the cash is received which is scheduled to be $ 100,000 in 2022 and $ 300,000 in 2023. The tax rate for 2021 and previous years is 40%. The rate for 2022 will be reduced to 34%, and will be further reduced to 30% for 2023 and 2024. Assume the future rates are known at the end of 2021.The Company has income taxes of $ 300,000 due per the 2021 current tax return. There are no permanent differences and no additions or disposals of fixed assets in 2021. Required: What is the Accounting Income and Taxable income for Company B.
At December 31, 2020 Company B had one temporary difference (related to depreciation) that
resulted in a
Company B has four temporary differences.
Details on the four temporary differences:
· Net book value of fixed assets for accounting purposes is $ 500,000 more than the tax
value. This will reverse by $ 100,000 in 2022, $ 250,000 in 2023 and $ 150,000 in 2024.
· Royalties of $ 600,000 were collected in advance of being earned. They are taxed when
received in 2021 but will not be included in accounting income until 2022.
· Various expenses totaling $ 500,000 have been accrued for accounting but are not
deductible for tax purposes until paid. $ 200,000 of this is to be paid in 2022 and
$ 300,000 to be paid in 2023.
· Profit on instalment sales were recognized for accounting as earned in 2021 for a total of
$ 400,000. However, they are not taxed until the cash is received which is scheduled to
be $ 100,000 in 2022 and $ 300,000 in 2023.
The tax rate for 2021 and previous years is 40%. The rate for 2022 will be reduced to 34%, and
will be further reduced to 30% for 2023 and 2024. Assume the future rates are known at the end
of 2021.The Company has income taxes of $ 300,000 due per the 2021 current tax return. There
are no permanent differences and no additions or disposals of fixed assets in 2021.
Required:
What is the Accounting Income and Taxable income for Company B.
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