Question

At the beginning of 2016, its first year of operations, Cooke Company purchased an asset for $ 100,000. This asset has an 8 year economic life with no residual value, and it is being depreciated by the straight line method for financial reporting purposes. For tax purposes, however, the asset is being depreciated using the MACRS (200%, 5 year life) method. During 2016, Cooke reported pretax financial income of $ 51,500 and taxable income of $ 44,000. The depreciation temporary difference caused the difference between the two income amounts. The tax rate in 2016 was 30%, and no change in the tax rate had been enacted for future years.
Required:
1. Prepare a schedule that shows for each year, 2016 through 2023,
(a) MACRS depreciation,
(b) Straight line depreciation,
(c) The annual depreciation temporary difference, and
(d) The accumulated temporary difference at the end of each year.
2. Prepare a schedule that computes for each year, 2016 through 2023, (a) the ending deferred tax liability and (b) the change in the deferred tax liability.
3. Prepare Cooke’s income tax journal entry at the end of 2016.
4. Next Level Explain what happens to the balance of the deferred tax liability at the end of 2016 through 2023.


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  • CreatedOctober 05, 2015
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