Financial Accounting
9th Edition
ISBN: 9781259738692
Author: Libby
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
thumb_up100%
Chapter S, Problem 5E
Calculating a
LOS-5 On January 1, 2013, Berkshire Hathaway purchased a piece of equipment for $90,000. The following table reflects how Berkshire is
| TAX | |||
| Fiscal Year Ending |
Depreciation Expense |
Accumulated Depreciation |
Book Value |
| 90,000 | |||
| 2013 | 30,000 | 30,000 | 60,000 |
| 2014 | 40,005 | 70,005 | 19,995 |
| 2015 | 19,995 | 90,000 | 0 |
| TAX | |||
| Fiscal Year Ending | Depreciation Expense | Accumulated Depreciation | Book Value |
| 90,000 | |||
| 2013 | 30,000 | 30,000 | 60,000 |
| 2014 | 40,005 | 70,005 | 19,995 |
| 2015 | 19,995 | 90,000 | 0 |
Use the information above to fill in the deferred tax liability column below:
| FINANCIAL REPORTING | ||||
| Fiscal Year Ending |
Taxable | Tax | Deferred Tax | |
| Revenue | Income | Expense | Liability | |
| 2013 | 200,000 | 170,000 | 59,500 | |
| 2014 | 200,000 | 170,000 | 59,500 | |
| 2015 | 200,000 | 170,000 | 59,500 | |
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Depreciation as a Tax Shield
The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Supreme Company is considering the purchase of an asset as of January 1, 2017. The cost of the asset with a five-year life and zero residual value is $123,300. The company will use the straight-line method of depreciation.
Supreme's income for tax purposes before recording depreciation on the asset will be $46,900 per year for the next five years. The corporation is currently in the 30% tax bracket.
Required:
Calculate the amount of income tax that Supreme must pay each year if the asset is and is not purchased.
1. Amount of taxes paid if asset is not purchased is:
$fill in the blank 1
2a. Amount of depreciation if asset is purchased is:
$fill in the blank 2
b. Amount of taxes paid if asset is purchased is:
$fill in the blank 3
3. What is the amount of the depreciation tax shield?
$fill in the blank 4
Depreciation as a Tax Shield
The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Supreme Company is considering the purchase of an asset as of January 1, 2017. The cost of the asset with a five-year life and zero residual value is $143,800. The company will use the straight-line method of depreciation.
Supreme's income for tax purposes before recording depreciation on the asset will be $48,400 per year for the next five years. The corporation is currently in the 25% tax bracket.
Required:
Calculate the amount of income tax that Supreme must pay each year if the asset is and is not purchased.
1. Amount of taxes paid if asset is not purchased is:
$
2a. Amount of depreciation if asset is purchased is:
$
b. Amount of taxes paid if asset is purchased is:
$
3. What is the amount of the depreciation tax shield?
$
Deferred Tax Calculations (Appendix)
Wyhowski Inc. reported income from operations, before taxes, for 2015-2017 as follows:
2015
$433,000
2016
495,000
2017
580,000
When calculating income, Wyhowski deducted depreciation on plant equipment. The equipment was purchased January 1, 2015, at a cost of $180,000. The equipment is expected to last three years and have a(n) $15,000 salvage value. Wyhowski uses straight-line depreciation for book purposes. For tax purposes, depreciation on the equipment is $103,000 in 2015, $41,000 in 2016, and $21,000 in 2017. Wyhowski's tax rate is 35%.
. What is the balance in the Deferred Income Tax account at the end of 2015, 2016, and 2017? If your answer is zero, enter "0". If required, round all calculations to the nearest dollar.
Year
Balance
Debit or Credit
2015
$fill in the blank 7
2016
$fill in the blank 9
2017
$fill in the blank 11
Chapter S Solutions
Financial Accounting
Ch. S - Defining a Lessor Which of the following best...Ch. S - Prob. 2MCQCh. S - Prob. 3MCQCh. S - Prob. 4MCQCh. S - Prob. 5MCQCh. S - Prob. 6MCQCh. S - Prob. 1MECh. S - Prob. 2MECh. S - Prob. 3MECh. S - Prob. 4ME
Ch. S - Prob. 1ECh. S - Prob. 2ECh. S - Prob. 3ECh. S - Prob. 4ECh. S - Calculating a Deferred Tax Liability LOS-5 On...Ch. S - Prob. 6ECh. S - Prob. 7ECh. S - Prob. 8ECh. S - Prob. 9ECh. S - Prob. 10ECh. S - Converting Operating Leases to Capital Leases...Ch. S - Converting Operating Leases to Capital Leases...Ch. S - Computing Effective Tax Rates LOS-4 Below is...Ch. S - Prob. 4PCh. S - Prob. 5PCh. S - Prob. 6PCh. S - Analyzing Starbuckss Lease Disclosures The...Ch. S - Analyzing Disneys Income Tax Disclosures The...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Deferred Tax Calculations (Appendix) Wyhowski Inc. reported income from operations, before taxes, for 2015-2017 as follows: 2015 $197,000 2016 225,000 2017 264,000 When calculating income, Wyhowski deducted depreciation on plant equipment. The equipment was purchased January 1, 2015, at a cost of $82,000. The equipment is expected to last three years and have a(n) $7,000 salvage value. Wyhowski uses straight-line depreciation for book purposes. For tax purposes, depreciation on the equipment is $47,000 in 2015, $19,000 in 2016, and $9,000 in 2017. Wyhowski's tax rate is 35%. Required: Enter all amounts as positive numbers. 1. How much did Wyhowski pay in income tax each year? If required, round all calculations to the nearest dollar. Year Taxes Paid 2015 $fill in the blank 1 2016 $fill in the blank 2 2017 $fill in the blank 3arrow_forwardSINCO Ltd. purchased a piece of equipment in the year 2018 for the sum of $ 200,000. The company is subject to a tax depreciation rate of 25%. According to the following table, what is the depreciation allowance that this company can claim in 2020? (in the following picture : Année is year)arrow_forward5arrow_forward
- Greene Co. has pretax book income for the year ended December 31, 2022 in the amount of $315,000 and has a tax rate of 30%. Depreciation for tax purposes exceeded book depreciation by $10,500.What should Greene Co. record as its deferred tax liability for 2022? Group of answer choices $94,500 $0 $91,350 $3150arrow_forwardQuestion 1. Ltd purchased a machine on 1 July 2014 for $320,000. The machine is expected to have a useful life of 4 years (straight-line basis) and no residual value. The ATO allows the company to depreciate the asset over 5 years for taxation purposes. The profit before tax for the company for the year ending 30 June 2015 is $500,000. The tax rate is 30%. Required: A).Calculate the company's taxable profit and hence its tax payable for 2015. B).Determine the deferred tax liability or deferred tax asset that will result. C). Prepare the necessary journal entries on 30 June 2015.arrow_forwardPlease Introduction and explanation and show work without plagiarism strictly pleasearrow_forward
- Provide Answer with calculation and explanationarrow_forwardWhyRU Company usually depreciates its equipment using straight line method for accounting purposes, but for tax purposes its sum-of-the-years method. WhyRU Company acquired the equipment through purchase amounting to P2,400,000 on January 1,2018. Assume a tax rate of 30%. Useful life is 4 years. WhyRU Company made the following income in its income tax return available through reports for 2018 – P800,000; 2019 – P890,0000; 2020 – P1,200,000; 2021 – P1,500,000 There is no other differences between WhyRU's accounting income and taxable income for years 2018, 2019, 2020 and 2021 other than for the difference in depreciation for the equipment described.arrow_forwardAssume that for a particular company the only temporary difference for tax effect accounting purposes relates to the depreciation of a newly acquired machine. The machine is acquired on 1 July 2015 at a cost of $212,000. Its useful life is considered to be 7 years, after which time it is expected to have no residual value. For tax purposes it can be fully written off over 5 years. The tax rate is assumed to be 30 per cent. What would be the balance of the deferred tax asset or deferred tax liability as at 30 June 2018. Type in the answer below the correct amount. Answer:arrow_forward
- Please don't give image formatarrow_forwardHanshabenarrow_forwardSubject:accounting Green Bank Corporation claimed $300,000 in Sec.179 epxense and $200000 in bonus depreciation in 2020 and the following is the remaining basis for each asset purchased in 2020 after applying Sec 179 and bonus depreciation: Desks and chairs purchasd on March remaining basis 150,000 and Computers purchased in April remaining basis 250000What is the TOTAL depreciation expense for the taxpayer in 2020?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Chapter 19 Accounting for Income Taxes Part 1; Author: Vicki Stewart;https://www.youtube.com/watch?v=FMjwcdZhLoE;License: Standard Youtube License