On January 1, 2019, Raven Corp hired Kevin Sachs to manage the companys Widget factory. Sachs started
Question:
On January 1, 2019, Raven Corp hired Kevin Sachs to manage the company’s Widget factory. Sachs started working on January 1, 2019. Based on his 2019 performance, Sachs earned a bonus of $90,000, paid to him by Raven Corp. as follows: $38,000 in 2020 and $52,000 in 2021. Following the matching principle, Raven Corp expenses compensation costs for financial purposes in the year the company benefits (i.e., the year an employee provides service). Following tax laws, Raven Corp deducts compensation costs on the tax returns in the year paid. Raven Corp’s other financial income, before considering compensation costs, was $530,000 per year. The tax rate was 40% in all years.
a)Does the temporary difference arise from an underlying asset or an underlying liability? Which one (name the asset or liability)? Is it on the financial books, the tax records or both? Remember, Underlying adjunct assets and underlying contra-liabilities are considered underlying assets and underlying adjunct liabilities and underlying contra-assets are considered underlying liabilities.
b) What is the Income Tax Payable in 2019, 2020 and 2021? Show all work in the table below for full credit.
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c. Do we have a deferred tax asset or a deferred tax liability? Explain why (as we practiced in class).
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield