Deferred Tax Liabilities and Assets
On January 1, the company purchased investment securities for $1,000. The securities are classified as trading. By December 31, the securities had a fair value of $700 but had not yet been sold. On January 1, the company also purchased a piece of equipment for $10,000. The equipment has a 4 year useful life and $0 residual value. The company uses straight line depreciation for financial accounting purposes. Assume that the depreciation deduction for income tax purposes is $3,300 in the first year of the life of the equipment. Excluding the trading securities and the depreciation, income before taxes for the year was $4,000. Assume that there are no other book tax differences. The income tax rate is 40% for the current year and all future years. Prepare the journal entry or entries necessary to record income tax expense for the year. State any assumptions you must make.