Question: Stead Corporation is formed in Year 4 to take over

Stead Corporation is formed in Year 4 to take over the operations of a small business. This business proved very stable for Stead, as is evidenced here ($ in thousands):

Stead also expends $1,400,000 on preoperating costs for a new product during Year 4 (not included in the above figures). These costs are deferred for financial reporting purposes but are deducted in calculating Year 4 taxable income. During Year 5, the new product line is delayed; and in Year 6, Stead abandons the new product and charges the deferred cost of $1,400,000 to the Year 6 income statement. The applicable tax rate is 50%.

a. Prepare comparative income statements for Years 4, 5, and 6. Identify all tax amounts as either current or deferred.
b. Compute both current and deferred taxes payable for the balance sheet for each of the Years 4, 5, and 6 (assume all tax payments and refunds occur in the year following the reportingyear).
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  • CreatedJanuary 22, 2015
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