Lynch Company began operations in 2013. The company reported $24,000 of deprecia

Question

Lynch Company began operations in 2013. The company reported $24,000 of depreciation expense on its income statement in 2013 and $26,000 in 2014. On its tax returns, Lynch deducted $32,000 for depreciation in 2013 and $37,000 in 2014. The 2014 tax return shows a tax obligation (liability) of $19,200 based on a 40% tax rate.

Required

a. Determine the temporary difference between the book value of depreciable assets and the tax basis of these assets at the end of 2013 and 2014.

b. Calculate the deferred tax liability for each year.

c. Calculate the income tax expense for 2014.

$Answer

d. Prepare a journal entry to record income tax expense and post the entry to the appropriate T-accounts for 2014.

2013 $Answer 2014 $Answer 2013 $Answer 2014 $Answer Description Debit Credit Answer Answer Answer Answer Answer Answer Deferred tax liability Answer Answer Deferred Tax Liability (L) d. Answer Answer Income Tax Expense (E) d. Answer Answer Income Taxes Payable (L) d. Answer Answer

Explanation / Answer

a. Statement showing temporary deficiency

b. Calculation of deffered tax liability

2013 = 8000 x 40% = 3200

2014 = 11000 x 40% = 4400

c. Income tax expenses for 2014 = Income tax liability + deffered tax liability'

= 19200 + 4400

= 23600

d. Journal entries

2013 2014 Depreciation expenses as per books of accounts 24000 26000 Depreciation as per tax 32000 37000 Temporary defficiency 8000 11000

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.