Calculating and Reporting Income Tax Expense Lynch Company began operations in 2
ID: 2412205 • Letter: C
Question
Calculating and Reporting Income Tax Expense Lynch Company began operations in 2016. The company reported $26,000 of depreciation expense on its income statement in 2016 and $26,000 in 2017. On its tax returns, Lynch deducted $32,000 for depreciation in 2016 and $37,000 in 2017, The 2017 tax return shows a tax obligation (liability) of $16,200 based on a 40% tax rate. Required a. Determine the temporary difference between the book value of depreciable assets and the tax basis of these assets at the end of 2016 and 2017 2016 $ 2017 $ b. Calculate the deferred tax llabililty for each year 2016 $ 2017 c. Calculate the income tax expense for 2017 CheckExplanation / Answer
Answers
Accounting
Income Taxes
Temporary Difference
Deferred Tax expense
[A]
[B]
[C = B – A]
[D = C x 40% tax rate]
2016 Depreciation expense
$ 26,000.00
$ 32,000.00
$ 6,000.00
$ 2,400.00
2017 Depreciation expense
$ 26,000.00
$ 37,000.00
$ 11,000.00
$ 4,400.00
Temporary Differences:
2016
$ 6,000.00
2017
$ 11,000.00
Deferred Tax liability balance
2016
$ 2,400.00
2017
$ 6,800.00 [ 2400 + 4400]
Income Tax expense for 2017
Income Tax Payable
$ 16,200.00 [given]
Deferred Tax expense 2017
$ 4,400.00 [calculated in working]
Income Tax expense for 2017
$ 20,600.00 [ 16200 + 4400]
Accounting
Income Taxes
Temporary Difference
Deferred Tax expense
[A]
[B]
[C = B – A]
[D = C x 40% tax rate]
2016 Depreciation expense
$ 26,000.00
$ 32,000.00
$ 6,000.00
$ 2,400.00
2017 Depreciation expense
$ 26,000.00
$ 37,000.00
$ 11,000.00
$ 4,400.00
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