18 Jul Financial Accounting
Global Company’s taxable incomes in two previous years of operation are as follows. Global elects the carryback option.
| 2013 | 2014 | 2015 | 2016 | |
| taxable income | $500,000 | $600,000 | $400,000 | $300,000 |
| tax rate | 45% | 45% | 40% | 40% |
Global reported a pre-tax income as follows in 2017-2020. The enacted tax rate is 40% in 2017 and beyond.
| 2017 | 2018 | 2019 | 2020 | |
| pre-tax income | ($100,000) | $300,000 | ($400,000) | $200,000 |
| tax rate | 40% | 40% | 40% | 40% |
There were no temporary differences at the beginning of 2017 originated from past years. The following permanent and temporary differences are incurred in 2017-2019. There was no differences newly originating in 2020. Both deferred tax asset and liability had 0 balances at the beginning of 2017.
2017
(a) Depreciation is reported by the straight-line method assuming a four-year useful life for a car acquired in 2017 at a cost of $100,000. On the tax return, deductions for depreciation will be as in the following table:
| 2017 | 2018 | 2019 | 2020 | |
| Depreciation expense recognized | $25,000 | $25,000 | $25,000 | $25,000 |
| Depreciation for tax purposes | $30,000 | $35,000 | $20,000 | $10,000 |
(b) Paid a total of $30,000, which is all tax deductible in 2017, as a prepaid rent for renting a facility for three years in 2018-2020.
2018
(a) Included in the 2018 income was $25,000 interest revenue from investments in municipal bonds, which is not taxable and yields a permanent difference.
(b) Installment sales revenue of $50,000 was recognized which will be taxable when the payments are received. $30,000 will be received in 2019, and the rest will be received in 2020.
2019
(a) Warranty expense of $65,000 was included in the 2019 pretax income. The warranty expense will be tax deductible when paid in 2020.
(Enter your answers in DOLLARS.Round your final answers to the nearest dollar amount.)
(1) For each of temporary difference, determine whether the difference would yield changes in DTL or DTA. Note that the determination is made only once in the year the difference is initially originated.
(2) Prepare the tax worksheets for 2017-2020.
Hint: For 2017-2020, the ending balances of DTL and DTA are as follows.
| 2017 | 2018 | 2019 | 2020 | |
| DTL | $16,000 | $36,000 | $18,000 | $0 |
| DTA | $0 | $0 | $52,000 | $0 |
(3) Prepare the journal entries for 2017-2020.
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