Question

LO 14-4) balance sheet amounted to $350,000. Assume that the income tax rate was 21%. Required: What amount should be reported as the deferred portion of the provision for income taxes in Lexington's income statement for the year ended December 31, 20X1? AICPA ADAPTED P 14-4 Nelson Inc. purchased machinery at the beginning of 20X 1 for $90,000. Management used the straight-line method to depreciate the cost for financial reporting purposes and the sum-of-the- years' digits method to depreciate the cost for tax purposes. The life of the machinery was estimated to be three years, and the salvage value was estimated at zero. Revenues less expenses other than depreciation expense and goodwill impairment equaled $500,000 for 20X1, 20X2, Computing tax expense and making deferred tax calculations (LO 14-2, LO 14-4, LO 14-7) AICPA ADAPTED

Answer 1

All amounts are in $

Answer is attached as a picture

20X1 2012 Son Dol 500,000 500,000 ( 30,000) (2000) (59000) (590od) (2000) Depreciation 429000 45000 470,000 Doppreciation per flere 90,000 / 3 = zgodo year = 40,000x /342+1) = 15,ooo financial reporting home 2023 Revenues less expenses less: less: Goodwill impeitment Income befuse tode Taxable income 20X2 Reverse less expenses. Soo,ooo 500.000 509000 Puspoo) IBS! Depreciation (30000) (spco) income before tox 455,000 470,000 485poo 10 Depreciation from of digits method year = 10,000 x 361247 245,000 90,000x1372413 = 30,000 2 In the given question, Depreciation is a difference and Goodwin a mestization is permanent demporary diference 20X1 20x3 00 ON 1 200 geu Jeer Temportasy difference are those that cause Fincial income & taxable income to differ and there will be com componsatir effect in some future year. Permanent difference are those that cars difference in financial Income and doxable income and are permanent (do not compensate (reverse în later years) Scanned with CamScanner

3 6 @Income tot die 20X1 95,550 20x2 98,700 20 X 3 101,850 (Tertable income x 217) ② DTA/DIL (deprecation) DTL Dil reverse ar DTA @ Amount of Coiff. in depox21%) 3,150 (3250) & Income tax expense (ate C Scanned with CamScanner 98,200 98700 78 poo

(470,000+ 18%) 84, too In 2012 @ Income tox doc 6 Eeffect on existing DTL Existing 15 poox 21% 15,000x18% 15000x3% Income tox colpense Scanned with CamScanner New leso) 84,150