Smith Incorporated acquired a piece of equipment at a total cost of $4,200,000. They use the straight- line method for financial reporting and MACRS depreciation for tax purposes. The asset has a six-year life for book purposes and because they use half year convention the cost is depreciated over six years for tax purposes also. The tax rate is 40%. The following information is available: Year Income before tax and Depreciation Tax Depreciation GAAP Depreciation 1 $920,000 $840,000 $700,000 2 1,600,000 1,344,000 $700,000 3 1,780,000 806,400 $700,000 4 2,100,000 483,840 $700,000 5 1,750,000 483,840 $700,000 6 1,200,500 241,920 $700,000 Total $4,200,000 $4,200,000 Determine the balance of the deferred tax account at the end of each year Prepare the journal entries to record the tax provision for each year.
Smith Incorporated acquired a piece of equipment at a total cost of $4,200,000. They use the straight- line method for financial reporting and MACRS depreciation for tax purposes. The asset has a six-year life for book purposes and because they use half year convention the cost is depreciated over six years for tax purposes also. The tax rate is 40%. The following information is available: Year Income before tax and Depreciation Tax Depreciation GAAP Depreciation 1 $920,000 $840,000 $700,000 2 1,600,000 1,344,000 $700,000 3 1,780,000 806,400 $700,000 4 2,100,000 483,840 $700,000 5 1,750,000 483,840 $700,000 6 1,200,500 241,920 $700,000 Total $4,200,000 $4,200,000 Determine the balance of the deferred tax account at the end of each year Prepare the journal entries to record the tax provision for each year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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1) Smith Incorporated acquired a piece of equipment at a total cost of $4,200,000. They use the straight- line method for financial reporting and MACRS depreciation for tax purposes. The asset has a six-year life for book purposes and because they use half year convention the cost is
| Year | Income before tax and Depreciation |
Tax Depreciation |
GAAP Depreciation |
| 1 | $920,000 | $840,000 | $700,000 |
| 2 | 1,600,000 | 1,344,000 | $700,000 |
| 3 | 1,780,000 | 806,400 | $700,000 |
| 4 | 2,100,000 | 483,840 | $700,000 |
| 5 | 1,750,000 | 483,840 | $700,000 |
| 6 | 1,200,500 | 241,920 | $700,000 |
| Total | $4,200,000 | $4,200,000 |
- Determine the balance of the
deferred tax account at the end of each year - Prepare the
journal entries to record the tax provision for each year.
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