Early in 2013 the Bicycle Messenger Service Corpo-ration ( BMSC) purchased a multiline/ multifunction telephone system at

Question:

Early in 2013 the Bicycle Messenger Service Corpo-ration ( BMSC) purchased a multiline/ multifunction telephone system at a cost of $ 50,000. At that time, BMSC estimated that the system had a useful life of five years with no expected at the end of that time. The company elected to use the straight- line method for financial reporting with a half- year depreciation taken in the first and last years of the asset’s life. For tax purposes, the company depreciates the system using the following percentages:
Year MACRS %
2013……………………. 20.00%
2014……………………. 32.00%
2015……………………. 19.20%
2016……………………. 11.52%
2017……………………. 11.52%
2018……………………. 5.76%
There were no permanent differences during both 2013 and 2014. Income before tax and depreciation is $ 120,000 in 2013 and $ 200,000 in 2014. The company is subject to a 40% tax rate.
Required
a. Prepare a schedule comparing book and tax depreciation and show the deferred tax provision and the cumulative balance of the deferred tax account.
b. Compute income tax expense and income taxes payable for 2013 and 2014.
c. What is the balance in the deferred tax account at December 31, 2014?
d. What is the firm’s reported net income for 2013 and 2014? Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...