Deferred T ax Calculations (Appendix) Clemente Inc. has reported income for book purposes as follows for the
Question:
Clemente has identified two items that are treated differently in the financial records and in the tax records. The first one is interest income on municipal bonds, which is recognized on the financial reports to the extent of $5,000 each year but does not show up as a revenue item on the companys tax return. The other item, equipment, is depreciated using the straight-line method at the rate of $20,000 each year for financial accounting but is depreciated for tax purposes at the rate of $30,000 in Year 1, $20,000 in Year 2, and $10,000 in Year 3.
Required
1. Determine the amount of cash that Clemente paid for income taxes each year. Assume that a 40% tax rate applies to all three years.
2. Calculate the balance in the Deferred Tax account at the end of Years 1, 2, and
3. How does this account appear on the balance sheet?
Step by Step Answer:
Using Financial Accounting Information The Alternative to Debits and Credits
ISBN: 978-1133161646
7th Edition
Authors: Gary A. Porter, Curtis L. Norton