Question

Kent Wesley is a junior member of the external audit team hired to audit Aldridge Inc.'s Year 2 financial statements. Kent has been tasked with reviewing differences related to Aldridge's financial statements versus its tax forms from Year 1 in order to prepare for the Year 2 audit. After reading through the workpapers gathered from the company's financial reporting group, Wesley prepares notes shown in the exhibit to discuss with his manager.Aldridge Inc. engaged in the following transactions during Year 1.

- Straight-line deprectation of $35,000 on its financial statements and accelerated depreciation of $52,000 on its tax books.

- A payout of $200,000 was received from a life insurance policy on its cheif operating officer, with Aldridge as the sole benficiary.

- Royalities of $50,000 were paid to Aldridge in advance, based on anticipated sales for next year.

- Aldridge booked bad debt expense of $25,000 associated with its receivables.

The company follows U.S. GAAP and has a tax rate in Year 1 of 30%. In Year 2, the company learns that its tax rate will be changing to 35% going forward. Income tax payable is $35,500 for Year 1 and $28,900 for Year 2.

Question 1. For each of the items listed above, please complete the table below:             

Item                                                                                                                  Temp or Perm Diff         Deferred Tax Asset(DTA) or

                                                                                                                                                                Deferred Tax Liability or Neither

1. Straight-line depreciation of $35,000 on its financial statements and accelerated depreciation of $52,000 on its tax books.

2. A payout if $200,000 was received from a life ins. policy on its cheif operating officer, with Aldridge as the sole beneficiary.

3. The company paid a fine of $1,000 for failing to file some paperwork with the IRS during the fiscal year.

4. Royalties of $50,000 were paid to Aldridge in advance, based on anticipated sales for Year 3.

5. Aldridge booked bad debt expense of $25,000 associated with its receivables.

Question 2

What is the journal entry associated with the transactions about for Year 1? (what are the amounts and debit/credit)

Income Tax Expense

Change in DTA

Change in DTL

Income Tax Payable

Question 3

What is the journal entry associated with the transactions above for Year 2? (what are the amounts, debits/credits)

Income Tax Expense

Change in DTA

Change in DTL

Income Tax Payable

Answer 1

Questiona DTA/DTL or neither. Temporary or Permanent difference temporary Permanent DTL (2) Neither 3 em Permanent Netther ДТА Tay 6 Temporary Temporary DTA

question 2 (@30%) Income tax expense &18000 Change in DTA $22500 Change in DIL Income fun payable $510 $35500. Question 3 (@357) Income tax expense $26000. Change in DrA $3750 Change in STL $850 Income taxpayable $28900 17 SUNDAY