Crosley Corp. sold an investment on an installment basis. The total gain of $168

Question

Crosley Corp. sold an investment on an installment basis. The total gain of $168,000 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment-sales method for tax purposes. The installment period is 3 years; one-third of the sale price is collected in the period of sale. The tax rate was 40% in 2014, and 35% in 2015 and 2016. The 35% tax rate was not enacted in law until 2015. The accounting and tax data for the 3 years is shown below. Financial Accounting Tax Return 2014 (40% tax rate) Income before temporary difference $196,000 $196,000 Temporary difference 168,000 56,000 Income $364,000 $252,000 2015 (35% tax rate) Income before temporary difference $196,000 $196,000 Temporary difference –0– 56,000 Income $196,000 $252,000 2016 (35% tax rate) Income before temporary difference $196,000 $196,000 Temporary difference –0– 56,000 Income $196,000 $252,000 Collapse question part (a1) Calculate cumulative temporary differences for years 2014-2016. 2014 2015 2016 Cumulative temporary difference $ $ $ Calculate current tax expense for years 2014-2016. Current tax for 2014 $ Current tax for 2015 $ Current tax for 2016 $ Calculate deferred tax expense for 2014-2016. Deferred tax for 2014 $ Deferred tax for 2015 $ Deferred tax for 2016 $ Click if you would like to Show Work for this question:

Explanation / Answer

Calculation of Gain after temparory difference, Taxable Gain, cumulative Taxable Gain, current tax and deferred tax :

(a1) cumulative temporary differences for years:

year 2014 = $ 224000

year 2015 = $ 56000

year 2016 = $ 56000

(b2) current tax expense for years :

Current tax for year 2014 = $ 22400

Current tax for year 2015 = $ 58800

Currrent tax for year 2016 = $ 78400

(c3) deferred tax expense for years :

Deferred tax for 2014 = $44800

Deferred tax for 2015 = $ 78400

Deferred tax for 2016 = $ 78400

particulars 2014 2014 total 2014 2015 2015 total 2015 2016 2016 total 2016 Income 364000 252000 616000 196000 252000 448000 196000 252000 448000 Income before Temporary
Difference 196000 196000 392000 196000 196000 392000 196000 196000 392000 Temporary Difference 168000 56000 224000 0 56000 56000 0 56000 56000 Gain after Temporary Difference 28000 140000 168000 196000 140000 336000 196000 140000 336000 Taxable gain for the year 56000 112000 112000 Accumulated taxable gain 56000 112000 + 56000 = 168000 112000+ 56000 + 56000 = 224000 Current Tax @40% 22400 @35% 58800 @35% 78400 Deferred Tax 44800 78400 78800

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