Reference no: EM133150093
Question - At the beginning of 2021, Pitman Co. purchased an asset for $1,800,000. This asset was depreciated using the straight-line method. For financial reporting purposes, the asset was depreciated over 5 years with an estimated salvage value of $150,000; for tax purposes, the asset was depreciated over 2.5 years with no salvage value. Pitman Co.'s tax rate was 20% for 2021 and all future years.
1. At the end of 2021, would Pitman have a higher pretax financial income or taxable income? Explain why.
2. Would the temporary difference result in a future taxable amount or future deductible amount? By how much?
3. Would the temporary difference result in a deferred tax liability or deferred tax asset? By how much?
4. Suppose Pitman's taxable income at the end of 2021 was $100,000, and the above temporary difference was the only difference between pretax financial income and taxable income.
A. Calculate income taxes payable.
B. Calculate income tax expense.
C. Write out the related journal entry to record income tax expense.
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