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The following information is available for the first three years of operations for Wildhorse Company: 1....

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Accounting

The following information is available for the first three yearsof operations for Wildhorse Company: 1. Year Taxable Income 2020$610,000 2021 460,000 2022 510,000 2. On January 2, 2020, heavyequipment costing $710,000 was purchased. The equipment had a lifeof 5 years and no salvage value. The straight-line method ofdepreciation is used for book purposes and the tax depreciationtaken each year is listed below: Tax Depreciation 2020 2021 20222023 Total $234,300 $319,500 $106,500 $49,700 $710,000 3. OnJanuary 2, 2021, $333,000 was collected in advance for rental of abuilding for a three-year period. The entire $333,000 was reportedas taxable income in 2021, but $222,000 of the $333,000 wasreported as unearned revenue at December 31, 2021 for bookpurposes. 4. The enacted tax rates are 20% for all years.

a-Prepare a schedule comparing depreciation for financialreporting and tax purposes.

b-Prepare a schedule of future taxable and (deductible) amountsat the end of 2021.

c-Prepare a schedule of the deferred tax (asset) and liabilityat the end of 2021.

d-Compute the net deferred tax expense (benefit) for 2021.

f-Prepare the journal entry to record income tax expense,deferred income taxes, and income tax payable for 2021.

Answer & Explanation Solved by verified expert
4.2 Ratings (521 Votes)

A.)

Year Depreciation for financial Reporting Purpose Depreciation for Tax Purpose Temporary Difference
2020 $142,000 $ 234,300 $(92,300)
2021 $142,000 $ 319,500 $(177,500)
2022 $142,000 $ 106,500 $35,500
2023 $142,000 $ 49,700 $92,300
2024 $142,000 -0- $142,000
$710,000 $710,000 0

B.)

2022 2023 2024 Total
Future Taxable Deductible Amound
Depreciation $35,500 $92,300 $142,000 $269,800
Rent $(111,000) $(111,000) - $(222,000)

C.

Future Taxable Deductible Tax Rate Defferd Tax Asset Defferd Tax Liability
Temporary Difference;
Depreciation $269,800 20% $53,960
Rent $(222,000) 20% $(44,400)
Total $(44,400) $53,960

D.

Deferred Tax Asset at end of 2021 $(44,400)
Deferred Tax Asset at Beginning of 2021 0
Deferred Tax (Benefit) $(44,400)
Deferred Tax Liability at end of 2021 $53,960
Deferred Tax Liability at beginning of 2021 $18,460
Deferred Tax Expense $35,500
Deferred Tax (Benefit) $(44,400)
Deferred Tax Expense $35,500
Net Deferred Tax Benefit $(8,900)

Calculation ;

Future Taxable deductible Amount 2021 2022 2023 2024 Total
Deprciation $(177,500) $35,500 $92,300 $142,000 $92,300

Deferred Tax Liability = $92,300 × 20% = $18,460

F.  

Date Account Title and Explanation Debit Credit
Income Tax Expense ($92,000- $8,900) $83,100
Deferred Tax Asset $44,400
Deferred Tax Liability $35,500
Income Taxes Payable ($460,000 × 20%) $92,000

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