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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Hunter Company purchased a light truck on January 2, 2019 for $18,000. The truck, which will be used for deliveries, has the following characteristics:
Estimated life: 5 years
Estimated residual value: $3,000
Depreciation method for financial statements: straight-line method
Depreciation for income tax purposes: MACRS (3-year life)
From 2019 through 2023, each year, Hunter had sales of $100,000, cost of goods sold of $60,000, and operating expenses (excluding depreciation) of $15,000. The truck was disposed of on December 31, 2023, for $2,000.
Required:
- 1. Prepare an income statement for financial reporting through pretax accounting income for each of the 5 years, 2019 through 2023.
- 2. Prepare, instead, an income statement for income tax purposes through taxable income for each of the 5 years, 2019 through 2023.
- 3. Compare the total income for all 5 years under Requirements 1 and 2.
1.
Prepare an income statement of Company H for financial reporting through pretax accounting income for each year.
Depreciation: Depreciation is a method of reducing the capitalized cost of long-lived operating assets or plant assets for the period the asset is used.
Prepare an income statement of Company H for financial reporting through pretax accounting income for each year as follows:
| Income statement | |||||
| Particulars | 2019 | 2020 | 2021 | 2022 | 2023 |
| Sales | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 |
| Less: Cost of goods sold | 60,000 | 60,000 | 60,000 | 60,000 | 60,000 |
| Gross profit | 40,000 | 40,000 | 40,000 | 40,000 | 40,000 |
| Less: Operating expenses | 15,000 | 15,000 | 15,000 | 15,000 | 15,000 |
| Depreciation expenses (1) | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 |
| Loss on disposal (2) | 0 | 0 | 0 | 0 | 1,000 |
| Pretax accounting income | 22,000 | 22,000 | 22,000 | 22,000 | 21,000 |
Table (1)
Working note (1):
Calculate the depreciation expense:
2.
Prepare an income statement of Company H for income tax purpose through taxable income for each year.
3.
Compare the total income of Company H with Requirement (1) and (2).
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