Homework Sourse000s 2xx1 2xx2 2xx3 Effective tax rate 40 GAAP Income befor
| . | $000s | 2xx1 | 2xx2 | 2xx3 | ||||||
| Effective tax rate | 40% | |||||||||
| GAAP Income before tax | 625 | 650 | 565 | |||||||
| A | $110 Warranty expense recorded & provision provided in 2xx1 but paid out 40% in 2xx2 & 60% in 2xx3 | |||||||||
| B | Earned $35 interest on tax free municipal bonds in 2xx1, included in GAAP income | |||||||||
| C | Provision for bad debts made in 2xx1 of $55, realized $40 of that in 2xx2 and $15 in 2xx3; no other provisions | |||||||||
| D | Received $160 for subscription n 2xx0; 25% recorded as GAAP income in 2xx0, balance is GAAP income in 2xx1 | |||||||||
| E | only depreciation expense for GAAP resulted from straight line $400 asset PURCHASED with $80 residual 4yr.life | |||||||||
| This asset was a MACRS 3yr. Asset for tax purpose; for GAAP into service for 4 of 12 months of 2xx1 | ||||||||||
| consider no other depreciable assets | ||||||||||
| F | NOL carryforward is $260 at YE 2xx0 | |||||||||
| G | Beginning Deferred tax asset/liability for 2xx1= $260 * 40% = $104 resulting from NOL | |||||||||
| PLUS add from D. Subscription above | ||||||||||
| 1 | Compute YE 2xx0 Deferred tax asset or liability [NET] | 2 | GAAP tax expense | |||||||
| Compute for 2xx1, 2xx2, 2xx3 each year or YE as appropriate | ||||||||||
| 3 | IRS tax payable | 4 | The YE deferred tax asset or liability [NET] | |||||||
| . | $000s | 2xx1 | 2xx2 | 2xx3 | ||||||
| Effective tax rate | 40% | |||||||||
| GAAP Income before tax | 625 | 650 | 565 | |||||||
| A | $110 Warranty expense recorded & provision provided in 2xx1 but paid out 40% in 2xx2 & 60% in 2xx3 | |||||||||
| B | Earned $35 interest on tax free municipal bonds in 2xx1, included in GAAP income | |||||||||
| C | Provision for bad debts made in 2xx1 of $55, realized $40 of that in 2xx2 and $15 in 2xx3; no other provisions | |||||||||
| D | Received $160 for subscription n 2xx0; 25% recorded as GAAP income in 2xx0, balance is GAAP income in 2xx1 | |||||||||
| E | only depreciation expense for GAAP resulted from straight line $400 asset PURCHASED with $80 residual 4yr.life | |||||||||
| This asset was a MACRS 3yr. Asset for tax purpose; for GAAP into service for 4 of 12 months of 2xx1 | ||||||||||
| consider no other depreciable assets | ||||||||||
| F | NOL carryforward is $260 at YE 2xx0 | |||||||||
| G | Beginning Deferred tax asset/liability for 2xx1= $260 * 40% = $104 resulting from NOL | |||||||||
| PLUS add from D. Subscription above | ||||||||||
| 1 | Compute YE 2xx0 Deferred tax asset or liability [NET] | 2 | GAAP tax expense | |||||||
| Compute for 2xx1, 2xx2, 2xx3 each year or YE as appropriate | ||||||||||
| 3 | IRS tax payable | 4 | The YE deferred tax asset or liability [NET] | |||||||
Solution
Explanation
Beginning Balancce for year 2xx0 = $40(interest on tax free municipal bonds)+ $16((160*25%)-$104) = $56
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| 2xx1 | 2xx2 | 2xx3 | |
| GAAP income | 625 | 650 | 565 |
| warranty expenses | 110 | -44 | -66 |
| Bad debts provision and reversal | 55 | -40 | -15 |
| GAAP depreciation | 80 | 80 | 80 |
| Tax depreciation | -133.333 | -177.8 | -59.24 |
| Loss Adjustment | -260 | ||
| Subscription income | -120 | ||
| Tax Profit | 356.6667 | 468.2 | 504.76 |
| IRS Tax | 142.6667 | 187.28 | 201.904 |
| GAAP Tax | 236 | 260 | 226 |
| Deferred Tax Asset for the Period | 93.33333 | 72.72 | 24.096 |
| Beginning Balance | 56 | 149.3333 | 222.0533 |
| Closing Balance | 149.3333 | 222.0533 | 246.1493 |
