Reference no: EM132863853
Question - Crandall Corp. was formed in 2011. Relevant information pertaining to 2011, 2012, and 2013 is as follows:
2011 2012 2013
Earnings before income tax $100,000 $100,000 $100,000
Accounting income includes the following:
Depreciation (assets have a cost of $120,000) 10,000 10,000 12,000
Pension expense* 5,000 7,000 10,000
Warranty expense 3,000 3,000 3,000
Dividend income (nontaxable) 2,000 2,000 3,000
Taxable income includes the following:
Capital cost allowance 25,000 15,000 7,000
Pension funding (amount paid) 7,000 8,000 9,000
Warranty costs paid 1,000 4,000 3,000
Tax rate - enacted each year 40% 44% 48%
*Pension amounts are tax deductible when paid, not when expensed. Over the long term, payments will equal total expense. The tax basis for the pension will always be zero. For accounting purposes, there will be a statement of financial position asset account called "deferred pension cost" for the difference between the amount paid and the expense, since the amount paid is higher.
Required -
1. Prepare the journal entry to record income tax expense for each year under both the taxes payable method and the comprehensive tax allocation method.
2. Reconcile the deferred tax adjustment for 2012 and 2013. How much is caused by the change in the tax rate and how much is caused by the temporary differences.