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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Deferred Tax Liability: Depreciation Gire Company began operations at the beginning of 2019 at which time it purchased a depreciable asset for $60, 000. For 2019 through 2022, the asset was depreciated on the straight-line basis over a 4-year life (no residual value) for financial reporting. For income tax purposes, the asset was depreciated using MACRS (200%, 3-year life).

For 2019 through 2022, Gire reported pretax financial income and taxable income of the following amounts (the differences are due solely to the depreciation temporary differences):

Chapter 18, Problem 8P, Deferred Tax Liability: Depreciation Gire Company began operations at the beginning of 2019 at which

Over the entire 4-year period, Gire was subject to an income tax of 30%, and no change in the tax rate had been enacted for future years.

Required:

  1. 1. Prepare a schedule that shows for each year, 2019 through 2022, the (a) MACRS depreciation, (b) straight-line depreciation, (c) annual depreciation temporary difference, and (d) accumulated temporary difference at the end of each year.
  2. 2. Prepare Gire’s income tax journal entry at the end of (a) 2019, (b) 2020, (c) 2021, and (d) 2022. (Round to the nearest dollar.)
  3. 3. Prepare the lower portion of Gire’s income statement for (a) 2019, (b) 2020, (c) 2021, and (d) 2022.

1 (a)

To determine

Prepare a schedule that shows MACRS depreciation from 2019 through 2022.

Explanation

Prepare a schedule that shows MACRS depreciation from 2019 through 2022:

YearMACRS Depreciation rateMACRS Depreciation (Tax purpose)
 (1)(2)=

1 (b)

To determine

Prepare a schedule that shows straight line depreciation from 2019 through 2022.

1 (c)

To determine

Prepare a schedule that shows the annual depreciation temporary difference from 2019 through 2022.

1 (d)

To determine

Prepare a schedule that shows the accumulated temporary difference from 2019 through 2022.

2 (a)

To determine

Record the income tax journal entry at the end of 2019 for Company C.

2 (b)

To determine

Record the income tax journal entry at the end of 2020 for Company C.

2 (c)

To determine

Record the income tax journal entry at the end of 2021 for Company C.

2 (d)

To determine

Record the income tax journal entry at the end of 2022 for Company C.

3 (a)

To determine

Prepare the lower portion of Company G’s income statement.

3 (b)

To determine

Prepare the lower portion of Company G’s income statement.

3 (c)

To determine

Prepare the lower portion of Company G’s income statement.

3 (d)

To determine

Prepare the lower portion of Company G’s income statement.

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