Question 2
Carolina Corp. purchased equipment for $180,000 on January 2, 2016, its first day of
operations. For book purposes, the equipment will be depreciated straight-line over three years
with no residual value. Pre-tax accounting incomes and taxable incomes are as follows:
2016
2017
2018
Pre-tax accounting income
$124,000
$140,000
$150,000
Taxable income
100,000
140,000
174,000
The reversible difference between pre-tax accounting income and taxable income is due solely
to the use of CCA for tax purposes.
Required:
a. Prepare the adjusting journal entries to record income taxes for all three years (expense,
deferred tax assets/liabilities, etc.), assuming that the enacted income tax rate for all three
years is 30%.
b. Prepare the adjusting journal entries to record income taxes for all three years (expense,
deferred tax assets/liabilities, etc.), if the enacted income tax rate for 2016 is 30% but that
in the middle of 2017, Parliament raises the income tax rate to 35%, retroactive to the
beginning of 2017.
