70.2K

Verified Solution

Link Copied!

$$Assume the following facts for RTY Corporation for Year $1.$

$$

RTY recorded $$2,300$ of book income.

At the end of the year, RTY had accumulated depreciation for book purposes of $$10,000$ and accumulated depreciation for tax purposes of $$15,000.$ As of the beginning of the year, the accumulated depreciation balances were $$8,000$ and $$12,000,$ respectively.

RTY paid premiums for officer life insurance of $$500.$ The premium is not deductible for tax purposes since the payout upon death of an officer will not be taxable income.

RTY established a warranty reserve of $$1,500.$

RTY$$s reserve for obsolete inventory decreased from $$3,750$ to $$1,950.$

RTY files a single state return where all of its taxable income is subject to an $8\%$ state income tax rate.

Assume a federal income tax rate of $21$ percent.

a$.$ What are RTY$\text{'}$s permanent items?

b$.$ What are RTY$\text{'}$s changes in temporary differences?

c$.$ What is RTY$\text{'}$s current tax liability $($Federal and State$)?$

d$.$ What is the journal entry to record RTY$\text{'}$s current tax liability?

e$.$ What is the temporary difference related to depreciation at the end of Year $1?$ Is it a deductible temporary difference or a taxable temporary difference?

f$.$ What are the total deferred tax assets and liabilities at year$-$end? Please list each.

g$.$ What is the journal entry to book deferred tax expense?

h$.$ What is the total provision for income tax?

Answer & Explanation Solved by verified expert

See Answer