On January 1, 2011 ACME Company purchased a building for $45million. ACME deprec

Question

On January 1, 2011 ACME Company purchased a building for $45million. ACME depreciates the building using straight line for financial accounting and uses MACRS for its tax return.   On December 31, 2014 ACME’s building had a book value of $36 million and a tax basis of $20million. On December 31, 2015 ACME’s building had a book value of $33million and a tax basis of $16million. ACME has no other temporary or permanent differences, and is in a 30% tax bracket. In 2015, ACME shows income before income taxes of $7million.

Make the journal entry ACME makes for income taxes?

What is ACME’s income after taxes?

Explanation / Answer

(a) journal entry :

income tax expense Account Dr. $1800000

   Deferred tax assets Account Dr. $300000

To income tax payable $2100000

   Notes : deferred tax assets of $300000 ,

depreciation as per books of Account = $3000000

  deprecaition as per income tax basis = $4000000

  Difference will deferred tax asset = $1000000 * 30% (tax rate)

= $300000

(b) ACME's income tax after tax :

     income after tax = $7000000 - $1800000

   = $5200000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.