Question

00 The enacted federal income tax rates are 20% for 2020 and 25% for 2021 through 2024. CPS had a deferred tax liability of $11,500 as of December 31, 2020. For the year ended December 31, 2021, CPS's income before income taxes was $920,000. On July 1, 2021, CPS Transportation issued $620,000 of 9% bonds. The bonds mature in 20 years, and interest is payable each January 1 and July 1. The bonds were issued at a price to yield the investors 10%. CPS records interest at the effective interest rate. 25 points Required: 1. Determine CPS Transportation's income tax expense and net income for the year ended December 31, 2021. 2. Determine CPS Transportation's interest expense for the year ended December 31, 2021. 3. Prepare the long-term liabilities section of CPS Transportation's December 31, 2021, balance sheet. eBook Complete this question by entering your answers in the tabs below. Print Required 1 Required 2 Required 3 References Determine CPS Transportation's interest expense for the year ended December 31, 2021. (Do not round intermediate calculations. Round final answers to the nearest whole dollars.) CPS TRANSPORTATION Calculation of Interest Expense For the Year Ended December 31, 2021 Lease obligation Bonds payable Total interest expense 0 < Required 1 Required 3 >

Answer 1

Part 1

CPS Transportation INCOME TAX EXPENSE AND NET INCOME For the Year Ended December 31, 2021
Income before income taxes		920000
Income tax expense:
Current (25% x [$920,000 – 56,000])	216000
Deferred	14000	230000
Net income		$690000

Reversal of temporary differences from depreciation giving rise to future taxable amounts:
2022	(24000)
2023	(34000)
2024	(44000)	(102000)
Effective tax rate for years 2022 through 2024		25%
Deferred tax liability, Dec. 31, 2021		(25500)
Less:
Dec. 31, 2020 deferred tax liability:
Temporary difference-depreciation
2021	56000
2022	(24000)
2023	(34000)
2024	(44000)	(46000)
Effective tax rate for years 2021 through 2024		25%
		(11500)
Increase (credit) needed		(14000)

           

Part 2

CPS Transportation Calculation of Interest Expense For the Year Ended December 31, 2021
Lease obligation (250468*10%)	25047
Bonds payable (566810*10%*1/2)	28341
Total interest expense	$53388

Bond price = (620000*0.14205)+((620000*9%/2)*17.15909) = 88071+478739 = $566810

Part 3

CPS Transportation LONG-TERM LIABILITIES SECTION OF BALANCE SHEET December 31, 2021
Long-term liabilities:
Lease liability - 14 payments of $34,000 due annually on January 1	250468
Less: current portion ($34,000 – 25047)	(8953)	241515
9% bonds payable due June 30, 2039, less unamortized discount of $52750		567250
Deferred income tax liability		25500
Total long-term liabilities		$834265

Unamortized discount = (620000-566810)-((5%*566810)-(4.5%*620000)) = 52750