Financial Accounting Tax Return $226,800 $226,800 194,400 64,800 $421,200 $291,6

Question

Financial Accounting

Tax Return

$226,800

$226,800

194,400

64,800

$421,200

$291,600

$226,800

$226,800

–0–

64,800

$226,800

$291,600

$226,800

$226,800

–0–

64,800

$226,800

$291,600

(a1)

2014

2015

2016

Crosley Corp. sold an investment on an installment basis. The total gain of $194,400 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment-sales method for tax purposes. The installment period is 3 years; one-third of the sale price is collected in the period of sale. The tax rate was 40% in 2014, and 35% in 2015 and 2016. The 35% tax rate was not enacted in law until 2015. The accounting and tax data for the 3 years is shown below.

Financial Accounting

Tax Return

2014 (40% tax rate) Income before temporary difference

$226,800

$226,800

Temporary difference

194,400

64,800

Income

$421,200

$291,600

2015 (35% tax rate) Income before temporary difference

$226,800

$226,800

Temporary difference

–0–

64,800

Income

$226,800

$291,600

2016 (35% tax rate) Income before temporary difference

$226,800

$226,800

Temporary difference

–0–

64,800

Income

$226,800

$291,600

Explanation / Answer

$ 129600($ 194400- $64800)

NIL($ 64800-$ 64800)

Deffered tax benefit (to be shown in Balance sheet)

(Cumulative temprory difference * current tax rate)

NIL

2014 2015 2016 Cumulative temprorary difference

$ 129600($ 194400- $64800)

$ 64800 ($129600-$64800)

NIL($ 64800-$ 64800)

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