Exam2-Acct414-F06 02 Exam2-Acct414-F06 01 Exam2-Acct414-F06

Problem 4

(work paper on next page)

                                                         Depreciation

                                                         for Financial                     Depreciation for                  Temporary

                Year                              Reporting Purposes             Tax Purposes                     Difference

                2006                                     $120,000                           $198,000                           $ (78,000)

                2007                                        120,000                             270,000                            (150,000)

                2008                                        120,000                               90,000                               30,000

                2009                                        120,000                               42,000                               78,000

                2010                                        120,000                             -0-                                       120,000

                                                               $600,000                           $600,000                        $     -0-       

Dec 31, 2006             Income Tax Expense………………………………………………………………………….. 200,000

                            Net Deferred Taxes……………………………………………………………………………            31,200

                            Income Tax Payable ($422,000 × 40%)…………………………………………….          168,800

 

Dec 31, 2007             Income Tax Expense………………………………………………………………………….. 120,600

                            Net Deferred Taxes………………………………………………………………….. 7,400

                            Income Tax Payable ($320,000 × 40%)…………………………………………….          128,000

 

Dec 31, 2008 (not required)             Income Tax Expense………………………………………………………………………….. 133,000

                            Net Deferred Taxes……………………………………………………………………………            17,500

                            Income Tax Payable ($330,000 × 40%)…………………………………………….          115,500

 Problem 4 

Note for 2007, the 160,000 prepaid is half current and half noncurrent – for determining balance sheet amounts.