Cumulative Spreadsheet Analysis
This assignment is based on the spreadsheet prepared in (1) of the cumulative spreadsheet assignment for Chapter 13. Review that assignment for a summary of the assumptions made in preparing a forecasted balance sheet, income statement, and statement of cash flows for 2009 for Skywalker Company. This assignment involves computations related to deferred income taxes and the amount of cash paid for income taxes. Skywalker would like to estimate the amount of cash it will pay for income taxes in 2009. The only difference between financial accounting income and taxable income for Skywalker is in the area of depreciation. Skywalker uses straight line depreciation for financial reporting purposes and an accelerated method for tax reporting. This difference has created a deferred tax liability, which is included in the “Other long term liabilities” reported in Skywalker’s balance sheet. The following information is available as of December 31, 2008:
|
Accumulated depreciation, financial accounting records |
$2700 |
|
Accumulated depreciation, tax records |
$5000 |
|
Expected future income tax rate |
330% |
Construct a spreadsheet that will allow you to answer the following questions.
1. Given this information, what is Skywalker’s deferred tax liability as of December 31,
2008? (Carry calculations to two decimal places.)
2. In 2009, it is expected that depreciation expense for income tax purposes will be 1.5 times as much as depreciation expense computed for financial reporting purposes. Estimate the amount of cash that Skywalker will pay for income taxes in 2009. Report your answer with two decimal places, and assume the following:
(a) Amortization expense is the same for book and for tax purposes.
(b) All current income taxes are paid in cash during the year.
(c) These calculations do not impact the overall total forecast for “Other long term liabilities” for 2009; the balance is still expected to increase at the same rate as sales.
3. Repeat (2), assuming the following:
(a) Depreciation expense for income tax purposes will be the same as depreciation expense computed for financial reporting purposes.
(b) Depreciation expense for income tax purposes will be 2.0 times as much as depreciation expense computed for financial reporting purposes.
4. Comment on what implicit assumption underlies your answer to (3b).