At the beginning of 2021, XYZ Co. purchased an asset for $1,800,000 with an estimated useful life of 5 years and an estimated salvage value of $150,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. XYZ Co.’s tax rate is 20% for 2021 and all future years. Pretax financial statement income is $1,000,000.
Instructions:
What is the taxable income? Show your calculations.
Prepare a journal entry showing the deferred tax liability, income tax expense, and income tax payable. Show all calculations.
Prepare the income tax expense section of the balance sheet, beginning with the line "income before income taxes".