Solution-Prepare income tax entries for 2005

Prepare income tax entries for 2005

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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Prepare income tax entries for 2005

Reference no: EM13514736

Reference no: EM13514736

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