Engineered Solutions Case Study

The date is November $15,2020.$ You are the new controller for Engineered Solutions. The company treasurer, Randy Patey, believes that$$as a result of$$pending legislation, the currently enacted $40\%$ income tax rate may be decreased for $2021$ to $25\%$ and is uncertain which tax rate to apply in$$determining$$deferred taxes for $2020.$ Patey$$also is$$uncertain which temporary differences should be included in that$$determination$$and has$$solicited$$your help. Your accounting group provided$$you$$the following information.$$

Two items are relevant to the decisions. One is the $$50,000$ insurance premium the company pays annually for the CEO's life insurance policy, for which the company is the beneficiary. The second is that Engineered Solutions$$purchased$$a building on January $1,2019,$ for $$6,000,000.$ The building's estimated useful life is $30$ years from the date of purchase, with no salvage value. Depreciation is computed using the straight$-$line method for financial reporting purposes and the MACRS method for tax purposes. As a result, the building's tax basis is $$5,200,000$at$$December $31,2020.$

Questions:$$

$1.$ What are$$the$$objectives$$of accounting for income taxes?$$

$2.$ How do you differentiate temporary differences and permanent differences?$$

$3.$ Please$$calculate$$the deferred tax liability$$at$$December $31,2020.$ Explain your answer.