Scheduling for Enacted Future Tax Rates
Refer to Practice 16–5. Assume that the enacted tax rates are as follows:
|
2008 |
40% |
|
2009 |
35 |
|
2010 |
35 |
|
2011 |
35 |
|
2012 |
30 |
For simplicity, assume that temporary differences reverse in a FIFO pattern; that is, assume that the first temporary difference created is the first to reverse. Prepare the journal entry or entries to record income tax expense in 2008.
Practice 16–5
Deferred Tax Liability
On January 1, 2008, the company purchased a piece of equipment for $30,000. The equipment has a 5 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 as follows: 2008 = $10,000; 2009 = $8,000; 2010 = $6,000; 2011 = $4,000; and 2012 = $2,000. Assume that revenue in each year 2008–2012 is $20,000, that the revenue is the same for both tax and financial reporting purposes, and that the only expenses are depreciation and income taxes. The income tax rate is 40% in all years. Prepare the journal entry or entries to record income tax expense in each year 2008–2012.