Question

You are the new accounting manager at the Barry Transport Company. Your CFO has asked you to provide input on the company's income tax position based on the following:

1. Pretax accounting income was $60 million and taxable income was $16 million for the year ended December 31, 2021.
2. The difference was due to three items:

1. Tax depreciation exceeds book depreciation by $40 million in 2021 for the business complex acquired that year. This amount is scheduled to be $60 million in 2022 and to reverse as ($50 million) and ($50 million) in 2023 and 2024, respectively.
2. Insurance of $12 million was paid in 2021 for 2022 coverage.
3. A $8 million loss contingency was accrued in 2021, to be paid in 2023.

3. No temporary differences existed at the beginning of 2021.
4. The tax rate is 25%.

Required:
1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.
2. Assume the enacted federal income tax law specifies that the tax rate will change from 25% to 20% in 2023. When scheduling the reversal of the depreciation difference, you were uncertain as to how to deal with the fact that the difference will continue to originate in 2022 before reversing the next two years. Upon consulting PricewaterhouseCoopers' Comperio database, you found:

.441 Depreciable and amortizable assets
Only the reversals of the temporary difference at the balance sheet date would be scheduled. Future originations are not considered in determining the reversal pattern of temporary differences for depreciable assets. FAS 109 [FASB ASC 740–Income Taxes] is silent as to how the balance sheet date temporary differences are deemed to reverse, but the FIFO pattern is intended.

You interpret that to mean, when future taxable amounts are being scheduled, and a portion of a temporary difference has yet to originate, only the reversals of the temporary difference at the balance sheet date can be scheduled and multiplied by the tax rate that will be in effect when the difference reverses. Future originations (like the depreciation difference the second year) are not considered when determining the timing of the reversal. For the existing temporary difference, it is assumed that the difference will reverse the first year the difference begins reversing.

Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.

Journal Entries

1) Record 2021 income taxes

Income Tax Expense

Deferred Tax Asset

Deferred Tax Liability

Income Taxes Payable

(I JUST NEED THE AMOUNTS)

2. Record 2021 income taxes

Insurance entry has been recorded correctly. PLEASE FIGURE IT OUT OR REFUND MY QUESTION THANK YOU

Answer 1

в с To TE 1 Answer 1 2 Event Debit General Journal 1 Income tax expense Deferred tax asset Deferred tax liability Income tax payable Credit 15 20 4 5 6 Amount $3.000 8 Answer 2 9 Deferred tax amount($ in millions) 10 Classification 11 Current Liabilities 12 Deferred taxes 13 Long term Liabilities 14 Deferred taxes 15 16 Explaination 17 Related Balance sheet account 18 $8.00 Tax rate Classification Current-C Noncurrent-NC Future Taxable (Deductible) Amounts Deferred Tax (Asset) NC C 19 20 -2 21 Liability-Loss contingency 22 Depreciable Assets 23 Prepaid insurance NC NC C -8x25% 40x25% 12|x25%

D E F G Α. 25 Net current liability (asset) 26 Net noncurrent liability (asset) 8 27 28 Answer 3 29 (in millions) 30 Current Year Deferred tax Liability Asset 31 Future Taxable (Deductible) 2016 Amounts 2017 60 2018 2019 32 33 34 Pretax accounting Income 35 Temporary differences: 36 Depreciation 37 Prepaid insurance 38 39 Deferred tax laibility 40 Loss contingency -40) 40* -12 12 25% 3 20% 8 8 41 - 20% -1.6|| L 1.61 16 42 Deferred tax asset 43 Taxable income(income tax return) 44 Enacted tax rate 45 tax payable currently 46 needed) 47 Less:beginning balances 48 balances 25% 4 $11.00 1 이 $11.00 $1.60 이 $1.601

49 Deferred tax liability 50 Deferred tax asset 51 52 2.11 2.1 0 11 11 55 Event Credit 13.4 1.6 General Journal Debit 1 Income tax expense(to balance) Deferred tax asset(determined above) Deferrred tax liability(determined above) Income tax payable( determined above)