The following information is available for the first three years of operations 1. Year Taxable Income 2023 $250,000 2024 180,000 2025 200,000 2. On January 2, 2023, equipment was purchased for $500,000. The equipment had an estimated service life of 5 years and no residual value. Straight-line depreciation is used for book purposes and CCA at 30% is used for tax purposes (subject to the accelerated investment incentive). 3. On January 2, 2024, $210,000 was collected in advance for the rental of a building for three years. The entire $210,000 was included in taxable income in 2024, but two-thirds of the $210,000 was reported as unearned revenue at December 31, 2024 for book purposes. 4. The enacted tax rate is 45% for all years. Instructions a) Prepare a schedule comparing depreciation for book purposes with CCA for tax purposes. b) Determine the deferred tax asset or liability at the end of 2023. c) Prepare a schedule of future taxable and deductible amounts at the end of 2024 d) Prepare a schedule of the deferred tax asset and/or liability at the end of 2024 e) Calculate the net deferred tax expense or benefit for 2024. f) Prepare the adjusting entries to record income tax expense, deferred taxes, and income tax payable for 2024.
The following information is available for the first three years of operations 1. Year Taxable Income 2023 $250,000 2024 180,000 2025 200,000 2. On January 2, 2023, equipment was purchased for $500,000. The equipment had an estimated service life of 5 years and no residual value. Straight-line depreciation is used for book purposes and CCA at 30% is used for tax purposes (subject to the accelerated investment incentive). 3. On January 2, 2024, $210,000 was collected in advance for the rental of a building for three years. The entire $210,000 was included in taxable income in 2024, but two-thirds of the $210,000 was reported as unearned revenue at December 31, 2024 for book purposes. 4. The enacted tax rate is 45% for all years. Instructions a) Prepare a schedule comparing depreciation for book purposes with CCA for tax purposes. b) Determine the deferred tax asset or liability at the end of 2023. c) Prepare a schedule of future taxable and deductible amounts at the end of 2024 d) Prepare a schedule of the deferred tax asset and/or liability at the end of 2024 e) Calculate the net deferred tax expense or benefit for 2024. f) Prepare the adjusting entries to record income tax expense, deferred taxes, and income tax payable for 2024.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:The following information is available for the first three years of operations 1. Year Taxable Income 2023 $250,000 2024 180, 000 2025 200,000 2. On January 2, 2023, equipment was purchased for $500,000. The
equipment had an estimated service life of 5 years and no residual value. Straight - line depreciation is used for book purposes and CCA at 30% is used for tax purposes (subject to the accelerated investment incentive). 3. On
January 2, 2024, $210,000 was collected in advance for the rental of a building for three years. The entire $210,000 was included in taxable income in 2024, but two-thirds of the $210,000 was reported as unearned revenue
at December 31, 2024 for book purposes. 4. The enacted tax rate is 45% for all years. Instructions a) Prepare a schedule comparing depreciation for book purposes with CCA for tax purposes. b) Determine the deferred tax
asset or liability at the end of 2023. c) Prepare a schedule of future taxable and deductible amounts at the end of 2024 d) Prepare a schedule of the deferred tax asset and/or liability at the end of 2024 e) Calculate the net
deferred tax expense or benefit for 2024. f) Prepare the adjusting entries to record income tax expense, deferred taxes, and income tax payable for 2024.
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VIEWStep 3: (b) Determine the deferred tax asset or liability at the end of 2023:
VIEWStep 4: (c) Prepare a schedule of future taxable and deductible amounts at the end of 2024:
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