Exhibit 19-1 On December 31, 2009, Fort Stockton, Inc.had no temporary differences that created deferred income taxes.On January 2, 2010, a new machine was purchased for $30, 000.Straight-line depreciation over a four-year life (no residual value)was used for financial accounting.Depreciation expense for tax purposes was $11, 000 in 2010, $9, 000 in 2011, $6, 000 in 2012, and $4, 000 in 2013.In each year, the income tax rate was 20% and Fort Stockton had no other items that created differences between pretax financial income and taxable income.Fort Stockton reported the following pretax financial income for 2010 through 2013:
$\begin{array}{ll}
2010 & \$ 50,000 \
2011 & 40,000 \
2012 & 30,000 \
2013 & 60,000
\end{array}$

-Refer to Exhibit 19-1.The entry to record income taxes on December 31, 2012, would include a

Question

Exhibit 19-1 On December 31, 2009, Fort Stockton, Inc.had no temporary differences that created deferred income taxes.On January 2, 2010, a new machine was purchased for $30, 000.Straight-line depreciation over a four-year life (no residual value)was used for financial accounting.Depreciation expense for tax purposes was $11, 000 in 2010, $9, 000 in 2011, $6, 000 in 2012, and $4, 000 in 2013.In each year, the income tax rate was 20% and Fort Stockton had no other items that created differences between pretax financial income and taxable income.Fort Stockton reported the following pretax financial income for 2010 through 2013:
$\begin{array}{ll}
2010 & \$ 50,000 \
2011 & 40,000 \
2012 & 30,000 \
2013 & 60,000
\end{array}$
 
-Refer to Exhibit 19-1.The entry to record income taxes on December 31, 2012, would include a

Quizplus · Accepted Answer

CThe correct answers are D) debit to Deferred Tax Liability for $300 and C) debit to Income Tax Expense for $8,000. For 2012, the financial depreciation is $7,500 ($30,000/4 years), while the tax depreciation is $6,000. This creates a temporary difference of $1,500, which will reverse in the future. The tax rate is 20%, so the deferred tax liability increase is $300 (20% of $1,500). The income tax expense is calculated on the pretax financial income of $30,000 for 2012. At a 20% tax rate, the income tax expense is $6,000 (20% of $30,000). However, considering the deferred tax liability adjustment of $300, the total income tax expense recorded is $8,000.

Exhibit 19-1 on December 31, 2009, Fort Stockton, Inc 2010$50,000201140,000201230,000201360,000\begin{array}{ll}2010 & \$ 50,000 \\2011 & 40,000 \\2012 & 30,000 \\2013 & 60,000\end{array}2010201120122013​$50,00040,00030,00060,000​

Exhibit 19-1 on December 31, 2009, Fort Stockton, Inc $\begin{array}{ll}2010 & \$ 50,000 \\2011 & 40,000 \\2012 & 30,000 \\2013 & 60,000\end{array}$