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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Required information
[The following information applies to the questions displayed below.]
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?
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Compute the deferred income tax amount reported on the balance sheet for each year.
Deferred
Income Tax
Year 1
Year 2
$ 160,800 X
$
152,800
< Req 1
Req 2 >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa331f5d3-d99c-40ee-9abe-64c3e0869912%2F91685f2c-dcca-4ade-93b7-e103aa59593c%2F4f2ukdd_processed.png&w=3840&q=75)
Transcribed Image Text:!
Required information
[The following information applies to the questions displayed below.]
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?
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Compute the deferred income tax amount reported on the balance sheet for each year.
Deferred
Income Tax
Year 1
Year 2
$ 160,800 X
$
152,800
< Req 1
Req 2 >
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