The records of Samuel Corp. provided the following data at the end of years 1 through 4
Question:
The records of Samuel Corp. provided the following data at the end of years 1 through 4 relating to income tax allocation:
The above amounts include only one temporary difference; no other changes occurred. At the end of year 1, the company prepaid an expense of $45,000, which was then amortized for accounting purposes over years 2–4 (straight-line). The full amount was included as a deduction in year 1 for income tax purposes. Each year’s tax rate was enacted in each specific year—that is, the Year 2 tax rate was enacted in year 2 and so on.
Required: 1. Calculate income tax payable for each year. 2. Calculate income tax expense for each year. 3. Comment on the effect of cumulative temporary differences on income tax expense when the income tax rate changes.
Transcribed Image Text:
Pre-tax accounting earnings
Taxable income (tax return)
Tax rate
Year 1
$87,000
42,000
26%
Year 2
$105,000
120,000
28%
Year 3
$120,000
135,000
30%
Year 4
$132,000
147,000
30%
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