Foltz Corp.\'s 2014 income statement had pretax financial income of $250,000 in
ID: 2521097 • Letter: F
Question
Foltz Corp.'s 2014 income statement had pretax financial income of $250,000 in its first year of operations. Foltz uses an accelerated depreciation method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions for depreciation over the five-year life of the assets acquired in 2014, and the enacted tax rates for 2014 to 2018 are as follows:
Book Over (Under) Tax Tax Rates
2014 $(50,000) 35%
2015 (65,000) 30%
2016 (15,000) 30%
2017 60,000 30%
2018 70,000 30%
There are no other temporary differences. In Foltz's December 31, 2014 statement of financial position, the non-current deferred tax liability and the income taxes currently payable should be
Non-current Deferred Income Taxes
Tax Liability Currently Payable
a. $39,000 $50,000
b. $39,000 $70,000
c. $15,000 $60,000
d. $15,000 $70,000
Explanation / Answer
Non-current deferred tax liability = Excess of tax depreciation over book depreciation * Future enacted tax rate
= 50,000 * 30%
= 15,000
Taxable income = Pretax financial income - Temporaty difference (excess of tax depreciation over book depreciation)
= 250,000 - 50,000
= 200,000
Income taxes currently payable = Taxable income * Current tax rate
= 200,000 * 35%
= 70,000
The answer is D.