Connect Access Card for Financial Accounting
9th Edition
ISBN: 9781259738678
Author: Robert Libby, Patricia Libby, Frank Hodge Ch
Publisher: McGraw-Hill Education
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 $100,000. The company will use the straight-line method of depreciation.
Supreme's income for tax purposes before recording depreciation on the asset will be $50,000 per year for the next five years. The corporation is currently in the 35% tax bracket.
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 $100,000. The company will use the straight-line method of depreciation.
Supreme's income for tax purposes before recording depreciation on the asset will be $50,000 per year for the next five years. The corporation is currently in the 35% 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
Chapter S Solutions
Connect Access Card for 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 $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 11arrow_forwardDeferred 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_forwardDepreciation 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? $arrow_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_forwardes On April 1, 2024, Titan Corporation purchases office equipment for $64,000. For tax reporting, the company uses MACRS and classifies the equipment as five-year personal property. In 2024, this type of equipment is eligible for 60% first-year bonus depreciation. For financial reporting, the company uses straight-line depreciation. Assume the equipment has no residual value. Required: 1. Calculate annual depreciation for the five-year life of the equipment according to MACRS. The company uses the half-year convention for tax reporting purposes. 2. Calculate annual depreciation for the five-year life of the equipment according to straight-line depreciation. The company uses partial-year depreciation based on the number of months the asset is in service for financial reporting purposes. 3. In which year(s) is tax depreciation greater than financial reporting depreciation? Complete this question by entering your answers in the tabs below. Required 1 Year Calculate annual depreciation for…arrow_forward1. Excess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse equally over the years 2017-2020. 2. Deferral, for book purposes, of $20,000 of rent received in advance. The rent will be recognized in 2017. 3. Pretax financial income, $300,000. 4. Tax rate for all years, 40%. Instructions (a) Compute taxable income for 2016. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (c) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $325,000.arrow_forward
- Assume 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_forwardComputing and Reporting Deferred Income TaxesEarly in January 2019, Oler, Inc., purchased equipment costing $24,000. The equipment had a 2‑year useful life and was depreciated in the amount of $12,000 in 2019 and 2020. Oler deducted the entire $24,000 on its tax return in 2019. This difference was the only one between its tax return and its financial statements. Oler’s income before depreciation expense and income taxes was $354,000 in 2019 and $367,500 in 2020. The tax rate in each year was 25%. Requireda. What amount of deferred tax liability should Oler report in 2019 and 2020? 2019 2020 b. Prepare the journal entries to record income taxes for 2019 and 2020. General Journal Description Debit Credit Income taxes payable To record income taxes for 2019. Income tax expense To record income taxes for 2020. c. Repeat requirement b if in 2019 the U.S. enacts a permanent tax rate change to be effective in…arrow_forwardThe following information is available for the first three years of operations for Cooper Company: Year Taxable Income 2017 $500,000 2018 375,000 2019 400,000 On January 2, 2017, heavy equipment costing $800,000 was purchased. The equipment had a life of 5 years and no salvage value. The straight-line method of depreciation is used for book purposes and the tax depreciation taken each year is listed below: Tax Depreciation 2017 2018 2019 2020 Total $264,000 $360,000 $120,000 $56,000 $800,000 The enacted tax rates are 40% for all years. Instructions Prepare a schedule comparing depreciation for financial reporting and tax purposes.arrow_forward
- The following information is available for the first three years of operations for Cooper Company: Year Taxable Income 2017 $500,000 2018 375,000 2019 400,000 On January 2, 2017, heavy equipment costing $800,000 was purchased. The equipment had a life of 5 years and no salvage value. The straight-line method of depreciation is used for book purposes and the tax depreciation taken each year is listed below: Tax Depreciation 2017 2018 2019 2020 Total $264,000 $360,000 $120,000 $56,000 $800,000 The enacted tax rates are 40% for all years. Instructions Determine the deferred tax (asset) or liability at the end of 2017.arrow_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_forwardCox Construction, a company in its 10th year of business, purchased a piece of equipment on April 1, year 9, for 20,000. Cox has used it for business purposes since the initial purchase date. The company depreciated the equipment using the MACRS half-year table for 5-year assets. For tax purposes, what is the amount of accumulated depreciation expense for the equipment as of December 31, year 10? a. 6,000 b. 10,400 c. 11,600 d. 12,800arrow_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