Several years ago, Western Electric Corp. purchased equipment for $20,000,000. W
ID: 2559211 • Letter: S
Question
Several years ago, Western Electric Corp. purchased equipment for $20,000,000. Western uses straight-line depreciation for financial reporting and MACRS for tax purposes. On December 31, 2015, the carrying value of the equipment was $18,000,000 and its tax basis was $15,000,000. On December 31, 2016, the carrying value of the equipment was $16,000,000 and the tax basis was $11,000,000. There were no other temporary differences and no permanent differences. Pretax accounting income for the current year was $25,000,000. A tax rate of 35% applies to all years.
Prepare one journal entry to record Western's income tax expense for the current year. Show well-labeled computations for the income tax payable and the deferred tax amount.
Explanation / Answer
Year Taxable Amount
(2016)
Pretax acciuntimng income $ 25,000,000
Temporary diiference
2015 services $3,000,000
2016 services $(5,000,000) $5,000,000
taxable income(Tax return) $ 23,000,000
Tax rate 35% 35%
Income tax payable $8,050,000
Deferred tax liability $ 1,750,000
Journal Entry: Debit Credit
Income tax expense $9,800,000
(8050000+1750000)
Income tax payable $8,050,000
Deferred tax liability $1,750,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.