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Depreciation Schedule for Tax and Financial Reporting

The following information is available for the first three years of operations for Cooper Company:
1. Year 2010 2011 2012
Taxable Income $500,000 330,000 400,000

2. On January 2, 2010, heavy equipment costing $600,000 was purchased. The equipment had a life of 5 years and no salvage value. The straight-line method of depreciation is used for book purposes and the tax depreciation taken each year is listed below:
Tax Depreciation 2010 2011 2012 2013 Total
$198,000 $270,000 $90,000 $42,000 $600,000

3. On January 2, 2011, $240,000 was collected in advance for rental of a building for a three-year period. The entire $240,000 was reported as taxable income in 2011, but $160,000 of the $240,000 was reported as unearned revenue at December 31, 2011 for book purposes.

4. The enacted tax rates are 40% for all years.


(a) Prepare a schedule comparing depreciation for financial reporting and tax purposes.
(b) Determine the deferred tax (asset) or liability at the end of 2010.
(c) Prepare a schedule of future taxable and (deductible) amounts at the end of 2011.
(d) Prepare a schedule of the deferred tax (asset) and liability at the end of 2011.
(e) Compute the net deferred tax expense (benefit) for 2011.
(f) Prepare the journal entry to record income tax expense, deferred income taxes, and income tax

Solution Summary

Depreciation schedule for tax and financial reporting is examined.