Question

can someone please explain how they got the tax basis amount and carrying value amounts in the solution ie.,420 and 550 for 2017

connect 17-17 Loss Carryback/Carryforward; Tempor Differences; Rate Change: nuary 20X7, Chang Inc. commenced business operations. At 31 December 20X9, the following in lowing information relates to Chang: 20x9 $720,000 20x8 ($453,600) 35% 50,000 40% 20x7 $302,400 30% 50,000 180,000 38,400 9,600 Earnings (loss) before tax Tax rate (enacted in each year) Depreciation expense (asset cost was $600,000) Capital cost allowance Dividends received (nontaxable) Golf club dues 50,000 78,000 60,000 9,600 60,000 9,600 Required: 1. Prepare journal entries to record tax for 20X7, 20X8, and 20X9. Assume that the loss carryforward usage i 20X8 is considered to be probable. 2. Prepare journal entries to record tax for 20X7, 20X8, and 20X9. Assume that the loss carryiorward usage in 20X8 is not considered to be probable but is considered to be probable in 20X9.

Answer 1

1.Asset cost is $600000 and the capital cost allowance is $180000 for 2017 therefore the net capitalized cost should be your   tax basis i.e $600000-$180000 =420000 for 2017 420000 for 2018 and (420000-78000)= 342000 for 2019

2.Carrying value is nothing but Asset cost less depreciation expense

2017-$600000-$50000= $550000 and $500000 and $450000 respectively for 2018 & 2019