On January 1, 2011 ACME Company purchased a building for $45million. ACME deprec
ID: 2447939 • Letter: O
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? need help
Explanation / Answer
The current year tax is =7 million *30%=2.1 million
Add: Deferred tax liability =1.57 million
Total liability =3.67 million.
The deferred computations are as follows:
Year
Taxable value
Accounting value
Deferred asset
Deferred liability
Depreciation
Deferred tax liability Tax amount
2014
20
36
16
3.2
0.96
2015
16
33
17
2.04
0.612
1.572
The journal entry would be:
Income tax expense 2.1
Deferred tax liability 1.57
Income tax payable 3.67
Income after tax = 7-3.67=$3.33 million
Year
Taxable value
Accounting value
Deferred asset
Deferred liability
Depreciation
Deferred tax liability Tax amount
2014
20
36
16
3.2
0.96
2015
16
33
17
2.04
0.612
1.572
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