1. Pretax accounting income was S70 million and taxable income was $8 million for the year ended December 31, 2021. 2. The difference was due to three items: a. Tax depreciation exceeds book depreciation by $60 million in 2021 for the business complex acquired that year. This amount is scheduled to be $80 million in 2022 and to reverse as ($70 million) and ($70 million) in 2023 and 2024, respectively. b Insurance of $8 millian was paid in 2021 for 2022 coverage C. A $6 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% ta 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 woud be scheduied. Future origwations are not considered in determving the reversal pattem of temporary aifferences for depreciable assets FAS 109(FAS8 ASC 740-incoame Taxes) is silent as to how the balance slieet date tevnpovary differences are deemed to reverse but the FIFO pattevn is intended. You interpret that to mean, when future taxable ameunts are being scheduled. and a portion of a temporary difference has yet to originate, only the reversals of the tenporary cifference at the balance sheet cate con 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 +lan r . al Cat iderion
1. Pretax accounting income was S70 million and taxable income was $8 million for the year ended December 31, 2021. 2. The difference was due to three items: a. Tax depreciation exceeds book depreciation by $60 million in 2021 for the business complex acquired that year. This amount is scheduled to be $80 million in 2022 and to reverse as ($70 million) and ($70 million) in 2023 and 2024, respectively. b Insurance of $8 millian was paid in 2021 for 2022 coverage C. A $6 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% ta 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 woud be scheduied. Future origwations are not considered in determving the reversal pattem of temporary aifferences for depreciable assets FAS 109(FAS8 ASC 740-incoame Taxes) is silent as to how the balance slieet date tevnpovary differences are deemed to reverse but the FIFO pattevn is intended. You interpret that to mean, when future taxable ameunts are being scheduled. and a portion of a temporary difference has yet to originate, only the reversals of the tenporary cifference at the balance sheet cate con 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 +lan r . al Cat iderion
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter18: Accounting For Income Taxes
Section: Chapter Questions
Problem 12P: Comprehensive Colt Company reports pretax financial income of 143,000 in 2019. In addition to pretax...
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Transcribed Image Text:1. Pretax accounting income was S70 million and taxable income was $8 million for the year ended December 31, 2021.
2. The difference was due to three items:
a. Tax depreciation exceeds book depreciation by $60 million in 2021 for the business complex acquired that year. This amount is
scheduled to be $80 million in 2022 and to reverse as ($70 million) and ($70 million) in 2023 and 2024, respectively.
b Insurance of $8 millian was paid in 2021 for 2022 coverage
C. A $6 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% ta 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 woud be scheduied. Future origwations are not considered
in determving the reversal pattem of temporary aifferences for depreciable assets FAS 109(FAS8 ASC 740-incoame Taxes) is silent as
to how the balance slieet date tevnpovary differences are deemed to reverse but the FIFO pattevn is intended.
You interpret that to mean, when future taxable ameunts are being scheduled. and a portion of a temporary difference has yet to
originate, only the reversals of the tenporary cifference at the balance sheet cate con 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
+lan r . al Cat iderion
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