Murphy Company purchased equipment for $300,000 on January 2, 2014, its first day of operations. For book purposes, the equipment will be depreciated using the straight-line method over three years with no salvage value. Pretax financial income and taxable income are as follows: The temporary difference between pretax financial income and taxable income is due to the use of accelerated depreciation for tax purposes.
Instructions
(a) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate applicable to all three years is 30%.
(b) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate as of 2014 is 30% but that in the middle of 2015, Congress raises the income tax rate to 35% retroactive to the beginning of 2015.

Question

Murphy Company purchased equipment for $300,000 on January 2, 2014, its first day of operations. For book purposes, the equipment will be depreciated using the straight-line method over three years with no salvage value. Pretax financial income and taxable income are as follows:  The temporary difference between pretax financial income and taxable income is due to the use of accelerated depreciation for tax purposes.
Instructions
(a) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate applicable to all three years is 30%.
(b) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate as of 2014 is 30% but that in the middle of 2015, Congress raises the income tax rate to 35% retroactive to the beginning of 2015.

Quizplus · Accepted Answer

The Answer of Murphy Company purchased equipment for $300,000 on January 2, 2014, its first day of operations. For book purposes, the equipment will be depreciated using the straight-line method over three years with no salvage value. Pretax financial income and taxable income are as follows:  The temporary difference between pretax financial income and taxable income is due to the use of accelerated depreciation for tax purposes.
Instructions
(a) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate applicable to all three years is 30%.
(b) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate as of 2014 is 30% but that in the middle of 2015, Congress raises the income tax rate to 35% retroactive to the beginning of 2015.

Murphy Company Purchased Equipment for $300,000 on January 2, 2014