Question

The long-term liabilities section of CPS Transportation's December 31, 2020. balance sheet included the following: (EV of $1. PV of si EVA of S1, PVA of $1. FVAD of S1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) a. A lease liability with 15 remaining lease payments of $42.000 each, due annually on January 1: Lease liability Less: current portion $319,455 10,054 $389,401 The incremental borrowing rate at the inception of the lease was 11% and the lessor's implicit rate, which was known by CPS Transportation, was 10% b. A deferred income tax liability due to a single temporary difference. The only difference between CPS Transportation's taxable income and pretax accounting income is depreciation on a machine acquired on January 1, 2020, for $600,000. The machine's estimated useful life is five years, with no salvage value. Depreciation is computed using the straight-line method for financial reporting purposes and the MACRS method for tax purposes. Depreciation expense for tax and financial reporting purposes for 2021 through 2024 is as follows: Year 2021 2022 2023 2024 MACRS Depreciation $192,000 96.000 86,000 76,000 Straight-line Depreciation $120,000 120,000 120,000 120. eee Difference $ 72,880 (24,000) (34,000) (44,000) The enacted federal income tax rates are 20% for 2020 and 25% for 2021 through 2024. CPS had a deferred tax liability of $7500 as of December 31, 2020. For the year ended December 31, 2021, CPS's income before income taxes was $1.000.000 On July 1, 2021, CPS Transportation issued $700,000 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. 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 < Prev 15 of 15 Next >

Answer 1

Requirement 1: Determine CPS Transportation income tax expense and net income for the year ended December 31,2021.

Refer to the below images for more detailed solution with calculations.

Determine and not cps income Really- Transportation income tax expense for the year ended Dec 31, 2021. $ in thousands) Future Taxable Corrot Amants 2021 2022 2023 2024 Total particolars 1000 34 44 102 pretax accounting income Temporary difference: - Deprecation Taxable income (income tax returns) Enacted tax rate бая розјеble correrary Deferred toy tiability (72) 24 १२8 P67. {э 32 23-1- 25.37 ६२२ Step Step ① : ①: Tax payable Deferred tax liability ending balance $2505 Step 6 : $ 18 Deferred day Liability change Gax expense plop: Step 4: $250 [1237 &18] Deforred Tax liability 7.5 18 beginning balance change 2505 ending balance.

or $250 Journal entry at the end of 2021 : Income tax expense (to balances Alc To Deferred tax liabitty ale To Income tax payable Atc $ 18 123२ -- ~ CPS Transportation Income tax expense and Net income for the year ended Dec 31, 2021 Amount Amoont taxes $1000000 particulars Income before income Income tax expense : Current Deferred Net Income le in 0 lovo) (re 232000 f 18000 och 4C280000) $ 750 000 - duppato