Reference no: EM132448829

case Deferred Taxes at Obadiah Vineyard .

Prepare answers for the following questions:

1.Using the information provided in the case, prepare the projected tax basis income statement and projected balance sheet with the new planting for 2005 through 2008. (Note: The loan is taken out for the new planting on January 1, 2005 and assume the new vines along with crop insurance are put into production on January 1, 2007.)

2. Now prepare the income statement and balance sheet for 2005-2008 for the US GAAP financials with the new planting.

3. Assume that you are a potential lender to this business (i.e., you are a bank considering a loan). What are the two primary differences between the tax and GAAP financial statements For these two accounts, which treatment appears more useful to you in making your loan decision? Support your answer.

4. Assume now that the firm estimates an expected useful life for the new planting of 5 years instead of 50 years. How will this change to the useful life affect the US GAAP balance sheet in 2007 and 2008? Please calculate and present any numbers that will change from your answer in part 2.

5. Assume now that the firm goes ahead with the new planting (with the original useful life of 50 years). In 2007, the tax rate changes unexpectedly to a 50% corporate rate. For 2007 and 2008 information only, how will this change the US GAAP financials? Please calculate and present any numbers that will change from your answer in part 2.

6. In your own words, how do you interpret the effect of the tax rate change on current period net income? Said another way, how would you explain the change in net income to someone unfamiliar with deferred tax accounting?