Prior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of $24,500 for financial reporting purposes and of $20,000 for tax purposes at the end of 2019. In addition, Shadrach recognized a $3,500 estimated liability for legal expenses in the financial statements during 2019; it expects to pay this liability (and deduct it for tax purposes) in 2023. The current tax rate is 30%, no change in the tax rate has been enacted, and the company expects to be profitable in future years. What is the amount of the net deferred tax liability at the end of 2019? a. $300 b. $450 c. $1,050 d. $1,350
Prior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of $24,500 for financial reporting purposes and of $20,000 for tax purposes at the end of 2019. In addition, Shadrach recognized a $3,500 estimated liability for legal expenses in the financial statements during 2019; it expects to pay this liability (and deduct it for tax purposes) in 2023. The current tax rate is 30%, no change in the tax rate has been enacted, and the company expects to be profitable in future years. What is the amount of the net deferred tax liability at the end of 2019? a. $300 b. $450 c. $1,050 d. $1,350
Solution Summary: The author explains how to calculate the amount of net deferred tax liability by identifying the appropriate journal entry for the transaction.
Prior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of $24,500 for financial reporting purposes and of $20,000 for tax purposes at the end of 2019. In addition, Shadrach recognized a $3,500 estimated liability for legal expenses in the financial statements during 2019; it expects to pay this liability (and deduct it for tax purposes) in 2023. The current tax rate is 30%, no change in the tax rate has been enacted, and the company expects to be profitable in future years. What is the amount of the net deferred tax liability at the end of 2019?
a. $300
b. $450
c. $1,050
d. $1,350
Definition Definition Items on the balance sheet that are created when the tax paid is less than the tax considered on the income statement. A deferred tax liability is recorded on the liability side of the balance sheet and is thus a tax burden. It increases the taxes owed in the future.
at the end of 2019, it’s first year of operations, slater company reported a book value for its depreciable assets of $40,000 for financial reporting purposes and $33,000 for income tax purposes. slater earned taxable income of 97,000 during 2019. The company is subject to a 30% income tax rate, and no change has been enacted for future years. The depreciation was the only temporary difference between taxable income and pretax financial income.
Prepare slater’s income tax journal entry at the end of 2019 and show how the deferred taxes would be reported on slater’s December 31, 2019, balance sheet.
Acme Company uses an accelerated depreciation method for income tax purposes and the straight-line depreciation method for financial reporting purposes. As of December 31, 2018, Acme has a $100,000 taxable temporary difference (tax-effected amount) on its balance sheet related to the book and tax basis difference in fixed assets (from depreciation). In 2019, depreciation for income tax purposes was $200,000, while depreciation for financial reporting purposes was $260,000. If the income tax rate is 25% and no other temporary or permanent differences exist, what would the ending deferred tax balance as of 12/31/19 be?
Wilcox Company has prepared the following reconciliation of its pretax financial income with its taxable income for 2019:
Pretax financial income
$3,000
Add: Estimated expense on 1-year warranties recognized for financial reporting in excess of actual warranty costs deducted for income taxes
100
Less: MACRS depreciation deducted for income taxes in excess of depreciation recognized for financial reporting
(150)
Taxable income
$2,950
At the beginning of 2019, Wilcox had a deferred tax liability of $495. The current tax rate is 30%, and no change in the tax rate has been enacted for future years. At the end of 2019, Wilcox anticipates that actual warranty costs will exceed estimated warranty expense by $100 next year and that financial depreciation will exceed tax depreciation by $1,800 in future years. Wilcox has earned income in all past years and expects to earn income in the future.
Required:
1.
Prepare Wilcox’s income tax journal entry at the end of 2019.…
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