Question

Wyhowski Inc. reported income from operations, before taxes, for 2015-2017 as follows:

2015	$181,000
2016	207,000
2017	243,000

When calculating income, Wyhowski deducted depreciation on plant equipment. The equipment was purchased January 1, 2015, at a cost of $75,000. The equipment is expected to last three years and have a(n) $6,000 salvage value. Wyhowski uses straight-line depreciation for book purposes. For tax purposes, depreciation on the equipment is $43,000 in 2015, $17,000 in 2016, and $9,000 in 2017. Wyhowski's tax rate is 35%.

Required:

Enter all amounts as positive numbers.

What is the balance in the Deferred Income Tax account at the end of 2015, 2016, and 2017? If your answer is zero, enter "0". If required, round all calculations to the nearest dollar.

Year	Balance	Debit or Credit
2015	$ 7000	Credit
2016	$ 2100	Credit
2017	$ ?	No balance

Answer 1

Requirement:- What is the balance in the Deferred Income Tax account at the end of 2015, 2016, and 2017? If your answer is zero, enter "0". If required, round all calculations to the nearest dollar.

Solution:-

Year Balance Debit or Credit 2015 $7,000 Credit 2016 $4,900 Credit 2017 No Balance Calculation of temporary difference and balance in deferred tax account Books Tax Temporary difference Deferred Tax Liability Cost of assets $75,000 $75,000 $23,000 $43,000 Depreciation for 2015 Net value of Assets at the end of 2015 $52,000 $32,000||$20,000 $7,000 (52,000 - 32,000) (20,000 * 35%) $23,000 $17,000 Depreciation for 2016 Net value of Assets at the end of 2016 $29,000 $15,000||$14,000 $4,900 (29,000 - 15,000) (14,000 * 35%) Depreciation for 2017 $23,000 $9,000 Net value of Assets at the end of 2017 $6,000 $6,000 Depreciation = ($75,000 - $6,000)/3 = $23,000

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