Exercise $18-46$

Recording and Reporting

Temporary Difference

LO$1$

Hint: See Demo $18-1$

Exercise $18-47$

Recording and Reporting

Temporary Difference

Staples Corporation would have had identical pretax income on both its income tax returns and its income state$-$

ments for Year $1$ through Year $4$ except for a depreciable asset that cost $$120,000.$ The asset was depreciated for

income tax purposes at the following amounts: Year $1,$ $$48,000$; Year $2,$ $$36,000$; Year $3,$ $$24,000$; and Year $4,$

$$12,000.$ However, for accounting purposes the straight$-$line method was used, resulting in $$30,000$ per year. The

accounting and tax periods both end December $31.$ There were no deferred taxes at the beginning of Year $1.$ The

depreciable asset has a four$-$year estimated life and to residual value. The tax rate for each year was $25\%.$ Pretax

GAAP income for each of the four years follows.

Year $2....$ $$250000$

Year $3....$ $$240,000$

Year $4...$ $$240,000$

Required

a$.$ Compute the increase to income tax payabile on December $31$ of Year $1,$ Year $2,$ Year $3,$ and Year $4.$

b$.$ Prepare a schedule to compute the deferrsd tax bulunce on December $31$ of Year $1,$ Year $2,$ Year $3,$ and

Year $4.$

c$.$ Record the income tax journal entry on December $31$ of Year $1.$ Year $2.$ Year $3,$ and Year $4.$

d$.$ For each year show how the defornd income tax amount would be reported on the balance sheet.

e$.$ Prepare the income tax section of the income stanment for Year $1$ and provide the disclosure of current and

deferred tax expense.

Repeat the requirements of Exercise $18-46,$ but assume instead that the asset was $100\%$ expensed for tax pur$-$

poses in Year $1.$