Deferred taxes

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Submit the worksheet as your completed assignment.

Assignment:

WA Smith & Company had the following results of operations for the years 2013 thru 2017. 

Year	2013	2014	2015	2016	2017
Income before tax	720,000	800,000	690,000	730,000	720,000

 

The company uses the asset-liability method to account for deferred taxes. The below table summarizes the differences in accounting between GAAP and tax regulations. Assume that these are the only deferred tax items over the 5 year period and that the company has a 40% tax rate each year. 

Item	2013	2014	2015	2016	2017	Total
Depreciation
Per books	10,000	10,000	10,000	10,000	10,000	50,000
Per tax return	50,000	–	–	–	–	50,000
Difference	(40,000)	10,000	10,000	10,000	10,000	–
Interest revenue from municipal bonds
Per books	10,000	10,000	10,000	10,000	10,000	50,000
Per tax return	–	–	–	–	–	–
Difference	10,000	10,000	10,000	10,000	10,000	50,000
Royalty revenue
Per books	25,000	25,000	25,000	25,000	–	100,000
Per tax return	100,000	–	–	–	–	100,000
Difference	(75,000)	25,000	25,000	25,000	–	–

 

SECTION 1 – Calculation of tax expense, taxable payable & deferred tax amounts

Deliverables:
1(a) Calculate income tax expense for each year

1(b) Calculate income tax payable for each year

1(c) Calculate current and non-current deferred tax amounts for each year

1(d) Prepare the entries to record income tax expense, income tax payable and deferred taxes for 2013 and 2014

SECTION 2 – Presentation in financial statements

Deliverables:
2(a) Complete the summary income statements for each year

2(b) Compete the deferred tax amounts on the balance sheet for each year

SECTION 3 – Valuation allowance

Before closing the books for 2013, the company determines $2,000 of the deferred tax asset related to depreciation will not be realized.

Deliverables:
3(a) Record the entry for the deferred tax valuation allowance

3(b) Complete the balance sheet presentation for the deferred tax asset and valuation allowance