On December 31, Colgait Inc. had an installment sale receivable balance of $180,000 recognized on its financial statements, while the amount was not recognized for tax purposes. Colgait Inc. also had a warranty accrual of $40,000 on December 31 that is not deductible for tax purposes. The installment receivable will be settled equally over the next three years. The warranty will be settled equally over the next two years. Taxable income for the current year was $1,000,000. Enacted tax rates are 25% for the current and next year, and 30% for years thereafter. Required a. Prepare schedules to compute the deferred tax balances on December 31. Note: Do not use negative signs with your answers. Accounts receivable Year 2 Year 3 Year 4 Reversal of difference between GAAP and tax bases $ 180,000 $ 0 $ Total 0 $ 180,000 Tax rate Deferred tax liability, ending balance = $ 25% 45,000 $ 30% 30% 0 $ 0 $ 45,000 Warranty liability Year 2 Year 3 Year 4 Total Reversal of difference between GAAP and tax bases $ Tax rate Deferred tax liability, ending balance $ 20,000 $ 25% 5,000 $ 20,000 $ 25% 5,000 $ 0 $ 40,000 25% 0 $ 10,000 b. Prepare the current year journal entry to record income tax expense, assuming zero beginning balances in deferred tax accounts. Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).
On December 31, Colgait Inc. had an installment sale receivable balance of $180,000 recognized on its financial statements, while the amount was not recognized for tax purposes. Colgait Inc. also had a warranty accrual of $40,000 on December 31 that is not deductible for tax purposes. The installment receivable will be settled equally over the next three years. The warranty will be settled equally over the next two years. Taxable income for the current year was $1,000,000. Enacted tax rates are 25% for the current and next year, and 30% for years thereafter. Required a. Prepare schedules to compute the deferred tax balances on December 31. Note: Do not use negative signs with your answers. Accounts receivable Year 2 Year 3 Year 4 Reversal of difference between GAAP and tax bases $ 180,000 $ 0 $ Total 0 $ 180,000 Tax rate Deferred tax liability, ending balance = $ 25% 45,000 $ 30% 30% 0 $ 0 $ 45,000 Warranty liability Year 2 Year 3 Year 4 Total Reversal of difference between GAAP and tax bases $ Tax rate Deferred tax liability, ending balance $ 20,000 $ 25% 5,000 $ 20,000 $ 25% 5,000 $ 0 $ 40,000 25% 0 $ 10,000 b. Prepare the current year journal entry to record income tax expense, assuming zero beginning balances in deferred tax accounts. Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).
Chapter14: Taxes On The Financial Statements
Section: Chapter Questions
Problem 3BCRQ
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Question
Transcribed Image Text:Recording Multiple Temporary Differences, Multiple Tax Rates
On December 31, Colgait Inc. had an installment sale receivable balance of $180,000 recognized on its financial statements, while the amount was not recognized for tax
purposes. Colgait Inc. also had a warranty accrual of $40,000 on December 31 that is not deductible for tax purposes. The installment receivable will be settled equally
over the next three years. The warranty will be settled equally over the next two years. Taxable income for the current year was $1,000,000. Enacted tax rates are 25% for
the current and next year, and 30% for years thereafter.
Required
a. Prepare schedules to compute the deferred tax balances on December 31.
•Note: Do not use negative signs with your answers.
Accounts receivable
Reversal of difference between GAAP and tax bases $
Tax rate
Deferred tax liability, ending balance
Year 2
Year 3
Year 4
Total
180,000 $
0 $
0 $
180,000
$
25%
45,000 $
30%
30%
0 $
0 $
45,000
Warranty liability
Year 2
Year 3
Year 4
Total
Reversal of difference between GAAP and tax bases $
Tax rate
Deferred tax liability, ending balance
$
20,000 $
25%
5,000 $
20,000 $
0 $
40,000
25%
5,000 $
25%
0 $
10,000
b. Prepare the current year journal entry to record income tax expense, assuming zero beginning balances in deferred tax accounts.
•Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).
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