Question

For the current year, Watertown Dakota Corp. (WDC) has a $20,000 difference between its pretax accounting income and its taxable income, as indicated in the following schedule.
Required:
(a) Define ‘‘temporary difference’’ as it applies to the pretax accounting income and taxable income of a corporation. What is the dollar amount of the temporary difference in this situation?
(b) Prepare WDC’s year-end adjusting entry to record income tax expense for the current year. Assume that WDC’s effective income tax rate is 40 percent for both financial accounting and taxation purposes.
(c) Suppose that WDC pays the amount of tax due for the current year on January 15 of the following year. Record this payment.
(d) How much less income tax did WDC pay in the entry recorded in part (c) due to the temporary difference related to depreciation expense?
(e) Will WDC eventually pay the dollar amount you computed in part (d)? If so, what advantage does WDC realize as a result of the depreciation-related temporary difference?


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  • CreatedMarch 27, 2015
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