Calculating and Reporting Income Tax Expense Lynch Company began operations in 2

Question

Calculating and Reporting Income Tax Expense Lynch Company began operations in 2016. The company reported $24,000 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 $19,200 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 8,000 2017 19,000

Explanation / Answer

Answer

Deferred tax liability as calculated correctly for 2017

$7600

(-) Deferred Tax liability of 2016

$3200

Deferred Tax liability that must have been created in 2017

$4400

Description

Debit

Credit

Income Tax Expense

$23600

Income Taxes Payable

$19200

Deferred Tax Liability

$4400

Amount of Income Tax expense for 2017

$23600

Deferred tax Liability

d. 0

$7600

Income Tax expense

d. 0

$23600

Deferred tax liability as calculated correctly for 2017

$7600

(-) Deferred Tax liability of 2016

$3200

Deferred Tax liability that must have been created in 2017

$4400

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