Book Basis Tax Basis Crane Inc., in its first year of operations, has the follow
ID: 2433220 • Letter: B
Question
Book Basis
Tax Basis
Crane Inc., in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2016.Book Basis
Tax Basis
Equipment (net) $408,000 $350,400 Estimated warranty liability $184,000 $ 0It is estimated that the warranty liability will be settled in 2017. The difference in equipment (net) will result in taxable amounts of $19,300 in 2017, $28,200 in 2018, and $10,100 in 2019. The company has taxable income of $513,000 in 2016. As of the beginning of 2016, the enacted tax rate is 34% for 2016–2018, and 30% for 2019. Crane expects to report taxable income through 2019.
Explanation / Answer
a) Journal Entry ;-
Working Note :-
Deferred Tax Assets :-
= $184000*34%
= $62560
Income Tax Payable :-
= $513000*34%
= $174420
Deferred Tax Liability :-
= ($19300 + $28200)*34% + $10100*30%
= $16150 + $3030
= $19180
b) Balance Sheet ;-
Particulars Debit($) Credit($) Income Tax Expense A/c Dr.(B/F) 131040 Deferred Tax Asset A/c Dr. 62560 To Income Tax Payable A/c 174420 To Deferred Tax Liability A/c 19180