Chapter 17, Problem 17.3P

Temporary Differences, Deferred Tax Liabilities. Early in 2018, Bicycle Messenger Service Corporation (BMSC) purchased a multiline/multifunction telephone system at a cost of $50,000 At that time, BMSC estimated that the system had a useful life of 5 years with no salvage value expected at the end of that time. The company elected to use the straight-line method for financial reporting with a half-year depreciation taken in the first and last years of the asset’s life.

For tax purposes, the company depreciates the system using the following percentages:

Year	MACRS (%)
2018	20.00%
2019	32.00
2020	19.20
2021	11.52
2022	11.52
2023	5.76

There were no permanent differences during both 2018 and 2019 Income before tax and depreciation is $120,000 in 2018 and $200,000 in 2019. The company is subject to a 40% tax rate.

Required

1. a. Prepare a schedule comparing book and tax depreciation and show the deferred tax provision and the cumulative balance of the deferred tax account.
2. b. Compute income tax expense and income taxes payable for 2018 and 2019.
3. c. What is the balance in the deferred tax account at December 31.2019?
4. d. What is the firm’s reported net income for 2018 and 2019?