Question

Aldridge Inc. engaged in the following transactions during Year 1. - Straight-line deprectation of $35,000 on its financial statements and accelerated depreciation of $52,000 on its tax books. - A payout of $200,000 was received from a life insurance policy on its cheif operating officer, with Aldridge as the sole benficiary. - Royalities of $50,000 were paid to Aldridge in advance, based on anticipated sales for next year. - Aldridge booked bad debt expense of $25,000 associated with its receivables. The company follows U.S. GAAP and has a tax rate in Year 1 of 30%. In Year 2, the company learns that its tax rate will be changing to 35% going forward. Income tax payable is $35,500 for Year 1 and $28,900 for Year 2. Question 1. For each of the items listed above, please complete the table below: Item Temp or Perm Diff Deferred Tax Asset(DTA) or Deferred Tax Liability or Neither 1. Straight-line depreciation of $35,000 on its financial statements and accelerated depreciation of $52,000 on its tax books. 2. A payout if $200,000 was received from a life ins. policy on its cheif operating officer, with Aldridge as the sole beneficiary. 3. The company paid a fine of $1,000 for failing to file some paperwork with the IRS during the fiscal year. 4. Royalties of $50,000 were paid to Aldridge in advance, based on anticipated sales for Year 3. 5. Aldridge booked bad debt expense of $25,000 associated with its receivables. Question 2 What is the journal entry associated with the transactions about for Year 1? (what are the amounts) Income Tax Expense Change in DTA Change in DTL Income Tax Payable Question 3 What is the journal entry associated with the transactions above for Year 2? (what are the amounts) Income Tax Expense Change in DTA Change in DTL Income Tax Payable

Answer 1

Question :1   

Item	Temp or Perm	(DTA)	(DTL)	Neither
1. Depreciation (52000-35000 =17000 *30%)	Temporary		$5100
2.Life insurance receipt	Permanent			$200000
3. Fine	Permanent			$1000
4. Advance royalty receipt (50000*30%)	Temporary	$15000
5. Bad debts (25000*30%)	Temporary		$7500
TOTAL		$15000	$12600
Net position		$2400

Question :2:

Profit and loss account $33100

DTA $2400

Income Tax Payable $35500

Question 3

Profit and loss account $31300

DTA $2400

Income Tax Payable $28900