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Wheeler Co. purchased machinery on 1/1/2022 for $450,000. Assuming no salvage value, Wheeler depreciated the asset straight line over a 5-year life and assumed a residual value of $40,000 for Book purposes. For taxes, the asset is also depreciated over a 5-year life, but with the assumption of no residual value for Tax purposes. Required: (a) What would be the balance in the Deferred Tax Liability account for the 2021 and 2022, assuming a 21% tax rate? (b) On 1/1/2023, Nancy Wheeler, the CEO of Wheeler Co, realized the asset had no additional productive value and sold the asset for $240,000. General Ledger Year Depreciation as per book Depreciation as per Tax Depreciation difference Tax rate Deferred tax liability Closing balance at the end of the each year 2022 82000 1680 1680 90000 90000 2023 82000 1680 3360 2024 90000 1680 5040 2025 90000 1680 6720 2026 90000 1680 8400 0 8400 adjusted basis sales value gain/loss tax expense 82000 82000 82000 360000 240000 120000 25200 8000 8000 8000 8000 8000 1 Cash Account Machinery Account 2 Machinery Account Profit and Loss account Deferred Taxes, 2022 Deferred Taxes, 2023 Tax Expense, 1/1/2024 3 Income tax expenses Income tax provision 21% 21% 21% 21% 21% Debit 240000 240000 50400 1680 1680 25200 Credit 240000 240000 50400 tax on gain or loss, and reversal of deferred tax

Wheeler Co. purchased machinery on 1/1/2022 for $450,000. Assuming no salvage value, Wheeler depreciated the asset straight line over a 5-year life and assumed a residual value of $40,000 for Book purposes. For taxes, the asset is also depreciated over a 5-year life, but with the assumption of no residual value for Tax purposes. Required: (a) What would be the balance in the Deferred Tax Liability account for the 2021 and 2022, assuming a 21% tax rate? (b) On 1/1/2023, Nancy Wheeler, the CEO of Wheeler Co, realized the asset had no additional productive value and sold the asset for $240,000. General Ledger Year Depreciation as per book Depreciation as per Tax Depreciation difference Tax rate Deferred tax liability Closing balance at the end of the each year 2022 82000 1680 1680 90000 90000 2023 82000 1680 3360 2024 90000 1680 5040 2025 90000 1680 6720 2026 90000 1680 8400 0 8400 adjusted basis sales value gain/loss tax expense 82000 82000 82000 360000 240000 120000 25200 8000 8000 8000 8000 8000 1 Cash Account Machinery Account 2 Machinery Account Profit and Loss account Deferred Taxes, 2022 Deferred Taxes, 2023 Tax Expense, 1/1/2024 3 Income tax expenses Income tax provision 21% 21% 21% 21% 21% Debit 240000 240000 50400 1680 1680 25200 Credit 240000 240000 50400 tax on gain or loss, and reversal of deferred tax

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter18: Accounting For Income Taxes
Section: Chapter Questions
Problem 5RE: Turnip Company purchased an asset at a cost of 10,000 with a 10-year life during the current year....
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Wheeler Co. purchased machinery on 1/1/2022 for $450,000. Assuming no salvage value, Wheeler depreciated the asset straight line over a 5-year life and assum ed a residual value of $40,000 for Book purposes. For taxes, the asset is also depreciated over a 5-year life, but with the assum ption of no residual value for Tax purposes. Deferred Taxes, 2022 Deferred Taxes, 2023 Tax Expense, 1/1/2024 1680 1680 25200 Required: (a) What would be the balance in the Deferred Tax Liability account for the 2021 and 2022, assum ing a 21% tax rate? (b) On 1/1/2023, Nancy Wheeler, the CEO of Wheeler Co, realized the asset had no additional productive value and sold the asset for $240,000. Year Depreciation as per book Depreciation as per Tax Depreciation difference Tax rate Deferred tax liability Closing balance at the end of the each year 2022 82000 90000 8000 21% 1680 1680 2023 82000 90000 8000 21% 1680 3360 2024 82000 90000 8000 21% 1680 5040 2025 82000 90000 8000 21% 1680 6720 2026 82000 90000 8000 21% 1680 8400 8400 General Ledger Debit Credit 1 Cash Account 240000 adjusted basis Machinery Account 240000 360000 sales value 2 Machinery Account Profit and Loss account 240000 240000 gain/loss 240000 120000 tax expense 25200 3 Income tax expenses 50400 tax on gain or loss, and reversal of deferred taxes. Income tax provision 50400
Transcribed Image Text:Wheeler Co. purchased machinery on 1/1/2022 for $450,000. Assuming no salvage value, Wheeler depreciated the asset straight line over a 5-year life and assum ed a residual value of $40,000 for Book purposes. For taxes, the asset is also depreciated over a 5-year life, but with the assum ption of no residual value for Tax purposes. Deferred Taxes, 2022 Deferred Taxes, 2023 Tax Expense, 1/1/2024 1680 1680 25200 Required: (a) What would be the balance in the Deferred Tax Liability account for the 2021 and 2022, assum ing a 21% tax rate? (b) On 1/1/2023, Nancy Wheeler, the CEO of Wheeler Co, realized the asset had no additional productive value and sold the asset for $240,000. Year Depreciation as per book Depreciation as per Tax Depreciation difference Tax rate Deferred tax liability Closing balance at the end of the each year 2022 82000 90000 8000 21% 1680 1680 2023 82000 90000 8000 21% 1680 3360 2024 82000 90000 8000 21% 1680 5040 2025 82000 90000 8000 21% 1680 6720 2026 82000 90000 8000 21% 1680 8400 8400 General Ledger Debit Credit 1 Cash Account 240000 adjusted basis Machinery Account 240000 360000 sales value 2 Machinery Account Profit and Loss account 240000 240000 gain/loss 240000 120000 tax expense 25200 3 Income tax expenses 50400 tax on gain or loss, and reversal of deferred taxes. Income tax provision 50400
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