Prepare income tax entries for 2005

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Reference no: EM13514736

Nowell Company is experimenting with comprehensive-liability income tax allocation called for in SFAS No. 109 but, in addition, they are employing discounting. No temporary differences exist up to 2000. Shown here is a schedule of tax depreciation, book depreciation, and income before depreciation.

Tax Depreciation

Book Depreciation

Income Before

Depreciation

Year

A1

A2

A1

A2


2005

$50,000


$35,000


$300,000

2006

40,000

$60,000

35,000

$50,000

400,000

2007

30,000

50,000

35,000

50,000

420,000

2008

20,000

40,000

35,000

50,000

440,000

The tax rate is 45 percent. The discount rate is 8 percent.

Required:

Prepare income tax entries for2005, 2006, 2007, and 2008discounting deferred tax liabilities at 8 percent. Why would using discounting be a stronger asset-liability orientation than not discounting deferred tax liabilities?

Reference no: EM13514736

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