Tyko Incorporated (TI) acquired a piece of equipment at a total cost of $ 1,800,

Question

Tyko Incorporated (TI) acquired a piece of equipment at a total cost of $ 1,800,000. TI uses the straight- line method of financial reporting and an accelerated method for tax purposes. The asset has a six-year life for book purposes and tax purposes. There is no estimated scrap value. T1 is subject to a 35% tax rate. We present the income and depreciation summary for both tax and GAAP below Income before Tax Tax GAAP Year and Depreciation Depreciation Depreciation $890,000 1,500,000 1,600,000 1,800,000 1,650,000 1,300,500 $360,000 576,000 345,600 207,360 207,360 103,680 $1,800,000 $300,000 300,000 300,000 300,000 300,000 300,000 $1,800,000 4 Totals a. b. c. Determine the balance of the deferred tax account at the end of each year Prepare the journal entries to record the tax provision for each year Prepare the journal entry to record the effect of a 30% income tax rate that is enacted into law effective as of the beginning of year 4

Explanation / Answer

1.

Journal:

c.

At the beginning of year 4:

Entry:

Tax netbookvalue Accumulated depreciation Year Gross block Opening balance Depreciation Closing balance Net block 1        18,00,000                        -          3,60,000           3,60,000        14,40,000 2        18,00,000           3,60,000        5,76,000           9,36,000           8,64,000 3        18,00,000           9,36,000        3,45,600        12,81,600           5,18,400 4        18,00,000        12,81,600        2,07,360        14,88,960           3,11,040 5        18,00,000        14,88,960        2,07,360        16,96,320           1,03,680 6        18,00,000        16,96,320        1,03,680        18,00,000                        -  

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