Oliver Company earned taxable income of $7,500 during 2019, its first year of operations. A reconciliation of
Question:
Oliver Company earned taxable income of $7,500 during 2019, its first year of operations. A reconciliation of pretax financial income and taxable income indicated that an additional $2,500 of accelerated depreciation was deducted for tax purposes and that an estimated expense of $5,800 was deducted for financial reporting purposes. The estimated expense is not expected to be deductible for tax purposes until 2022, when the liability is paid. The current tax rate is 30%, and no change in the tax rate has been enacted for future years. The resulting journal entry for 2019 would be:
Income Tax Expense Deferred Tax Asset Deferred Tax Liability Income Taxes Payable Income Tax Expense Deferred Tax Asset Income Taxes Payable Income Tax Expense Deferred Tax Liability Income Taxes Payable Income Tax Expense Deferred Tax Liability Income Taxes Payable 1,260 1,740 a. 750 2,250 b. 1,260 990 2,250 3,240 C. 990 2,250 d. 3,000 750 2,250
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a a Income Tax Expen...View the full answer
Intermediate Accounting Reporting and Analysis
ISBN: 978-1337788281
3rd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach
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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.
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