Fill out the excel below: Taxable deductions can differ in timing from book expenses. In this example, amounts are deduc

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Fill out the excel below:
Taxable deductions can differ in timing from book expenses. In
this example, amounts are deducted for taxes before they are booked
as expenses. This situation arises here because the company
depreciates its assets faster for taxes than for books. As a
result, the book basis of the PP&E exceeds its tax basis.

Year 1:
1. ACo books sales revenue of $125 for cash. This is immediately
taxable.
2. ACo buys PPE for $100 in cash. The PPE has a useful life
of two years with no salvage value. Its depreciation is described
below.
3. ACo books depreciation of $55 for financial reporting. The tax
depreciation is $75.
4. ACo books tax-exempt income of $30. The income is received in
cash.
5. ACo books a current tax expense for the tax bill. The tax rate
is 40%.
6. ACo pays $18 in cash taxes with the remaining to be paid in the
following year.
7. ACo books a deferred tax liability.

Year 2:
1. ACo books sales revenue of $125 in cash. This is immediately
taxable.
2. ACo does not buy in new PP&E is Year 2. No entry is needed
here.
3. ACo books the remaining depreciation for PPE.
4. ACo books tax-exempt income of $48. The income is received in
cash.
5. ACo books a current tax expense for the tax bill. The tax rate
is 40%.
6. ACo pays taxes due from prior year plus the entire tax bill for
year 2.
7. ACo reverses the deferred tax liability.

Fill Out The Excel Below Taxable Deductions Can Differ In Timing From Book Expenses In This Example Amounts Are Deduc 1 (48.57 KiB) Viewed 49 times

Cost of PPE purchased 100.00 Book Y1 Y2 Tax Y2 Y1 Revenue [in cash) Book depreciation Book income before permanent differences Tax exempt income [in cash Book income including permanent differences Taxable revenues Tax depreciation = Taxable income Excluded ---- 0.00 0.00 40.00% 40.00% Statutory tax rate Tax bill Current tax expense Deferred tax expense = Total tax expense Net income Effective tax rate 1 2 3 5 6 7 Sum 1 2 3 5 6 7 Sum Assets Cash PPE less accumulated depreciation Liability Tax payable DTL Equity Retained earnings Check Income statement Sales Book depreciation Tax exempt income Earnings before taxes CTE (B): Tax bill benefit DTE (DTB). = Total tax expense Net income