Recording and Reporting Temporary Difference Staples Corporation would have had identical pretax income on both its income tax returns and its income statements for Year 1 through Year 4 except for a depreciable asset that cost $ 3 6 0 , 0 0 0 The asset was depreciated for income tax purposes at the following amounts Year 1 , $ 1 4 4 , 0 0 0 Year 2 , $ 1 0 8 , 0 0 0 Year 3 , $ 7 2 , 0 0 0 and Year 4 , $ 3 6 , 0 0 0 However, for accounting purposes the straight line method was used, resulting in $ 9 0 , 0 0 0 per year The accounting and tax periods both end December 3 1 There were no deferred taxes at the beginning of Year 1 The depreciable asset has a four year estimated life and no residual value The tax rate for each year was 2 5 Pretax GAAP income for each of the four years follows Year Pretax GAAP Income Year 1 $ 6 9 0 , 0 0 0 Year 2 7 5 0 , 0 0 0 Year 3 7 2 0 , 0 0 0 Year 4 7 2 0 , 0 0 0 Required Schedules Journal Entries Financial Statement Presentation a Compute the increase to income tax payable on December 3 1 of Year 1 , Year 2 , Year 3 , and Year 4 Dec 3 1 , Year 1 Dec 3 1 , Year 2 Dec 3 1 , Year 3 Dec 3 1 , Year 4 Taxable income Answer 6 3 6 , 0 0 0 Answer 7 3 2 , 0 0 0 Answer 7 3 8 , 0 0 0 Answer 7 7 4 , 0 0 0 Tax rate 2 5 2 5 2 5 2 5 Income tax payable increase Answer 1 5 9 , 0 0 0 Answer 1 8 3 , 0 0 0 Answer 1 8 4 , 5 0 0 Answer 1 9 3 , 5 0 0 b Prepare a schedule to compute the deferred tax balance on December 3 1 of Year 1 , Year 2 , Year 3 , and Year 4 Note Do not use negative signs with your answers Year 1 Year 2 Year 3 Year 4 GAAP basis of depreciable asset Answer 2 7 0 , 0 0 0 Answer 1 8 0 , 0 0 0 Answer 9 0 , 0 0 0 Answer 0 Tax basis of depreciable asset Answer 2 1 6 , 0 0 0 Answer 1 0 8 , 0 0 0 Answer 3 6 , 0 0 0 Answer 0 Difference between GAAP and tax bases Answer 5 4 , 0 0 0 Answer 7 2 , 0 0 0 Answer 5 4 , 0 0 0 Answer 0 Tax rate 2 5 2 5 2 5 2 5 Answer Deferred tax liability, ending balance Answer 1 3 , 5 0 0 Answer 1 8 , 0 0 0 Answer 1 3 , 5 0 0 Answer 0 Please answer all parts of the question

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Question: Recording and Reporting Temporary Difference Staples Corporation would have had identical pretax income on both its income tax returns and its income statements for Year

Recording and Reporting Temporary Difference

Staples Corporation would have had identical pretax income on both its income tax returns and its income statements for Year

1

through Year

4

except for a depreciable asset that cost $

360, 000 .

The asset was depreciated for income tax purposes at the following amounts: Year

1,

144, 000

; Year

2,

108, 000

; Year

3,

72, 000

; and Year

4,

36, 000 .

However, for accounting purposes the straight

-

line method was used, resulting in $

90, 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 no residual value. The tax rate for each year was

25 % .

Pretax GAAP income for each of the four years follows.

Year Pretax GAAP Income

Year

1

690, 000

Year

2 750, 000

Year

3 720, 000

Year

4 720, 000

Required

Schedules

Journal Entries

Financial Statement Presentation

.

Compute the increase to income tax payable on December

31

of Year

1,

Year

2,

Year

3,

and Year

4 .

Dec.

31,

Year

1

Dec.

31,

Year

2

Dec.

31,

Year

3

Dec.

31,

Year

4

Taxable income Answer

636, 000

Answer

732, 000

Answer

738, 000

Answer

774, 000

Tax rate

25 % 25 % 25 % 25 %

Income tax payable increase Answer

159, 000

Answer

183, 000

Answer

184, 500

Answer

193, 500

.

Prepare a schedule to compute the deferred tax balance on December

31

of Year

1,

Year

2,

Year

3,

and Year

4 .

Note: Do not use negative signs with your answers.

Year

1

Year

2

Year

3

Year

4

GAAP basis of depreciable asset Answer

270, 000

Answer

180, 000

Answer

90, 000

Answer

0

Tax basis of depreciable asset Answer

216, 000

Answer

108, 000

Answer

36, 000

Answer

0

Difference between GAAP and tax bases Answer

54, 000

Answer

72, 000

Answer

54, 000

Answer

0

Tax rate

25 % 25 % 25 % 25 %

Answer

Deferred tax liability, ending balance

Answer

13, 500

Answer

18, 000

Answer

13, 500

Answer

0

Please answer all parts of the question.

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