Wapato Corporation purchased a new piece of equipment at the beginning of Year 1 for $1,000,000. The expected life of the asset is 20 years with no residual value. The company uses straight-line depreciation for financial reporting purposes and accelerated depreciation for tax purposes (the accelerated method results in $120,000 of depreciation in Year 1 and $100,000 of depreciation in Year 2). The company's federal income tax rate is 21 percent. The company determined its income tax obligations for Year 1 and Year 2 were $400,000 and $625,000, respectively. Required: 1-a. Compute the deferred income tax amount reported on the balance sheet for each year. 1-b. Is the deferred income tax a liability or an asset?
Wapato Corporation purchased a new piece of equipment at the beginning of Year 1 for $1,000,000. The expected life of the asset is 20 years with no residual value. The company uses straight-line depreciation for financial reporting purposes and accelerated depreciation for tax purposes (the accelerated method results in $120,000 of depreciation in Year 1 and $100,000 of depreciation in Year 2). The company's federal income tax rate is 21 percent. The company determined its income tax obligations for Year 1 and Year 2 were $400,000 and $625,000, respectively. Required: 1-a. Compute the deferred income tax amount reported on the balance sheet for each year. 1-b. Is the deferred income tax a liability or an asset?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter22: Accounting For Changes And Errors.
Section: Chapter Questions
Problem 11E: On January 1, 2014, Klinefelter Company purchased a building for 520,000. The building had an...
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