Murphy Company purchased equipment for $300,000 on January 2, 2014, its first da

Question

Murphy Company purchased equipment for $300,000 on January 2, 2014, its first day of operations. For book purposes, the equipment will be depreciated using the straight-line method over three years with no salvage value. Pretax financial income and taxable income are as follows: 2014 2015 2016 Pretax financial income $224,000 $260,000 $300,000 Taxable income 194,000 260,000 330,000 The temporary difference between pretax financial income and taxable income is due to the use of accelerated depreciation for tax purposes. Instructions (a) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate applicable to all three years is 30%. (b) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate as of 2014 is 30% but that in the middle of 2015, Congress raises the income tax rate to 35% retroactive to the beginning of 2015.

Explanation / Answer

jouranl entries

(b)

            income tax payable                                                                             $115,500

2014 2014 2016 Book depreciation $100,000 $100,000 $100,000 Tax depreciation 130,000    100,000    70,000 Difference (30,000) 0 $30,000

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

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