Stanley Corporation properly computed taxable income of $1,120,000 for the year ended December 31, 2020....
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Accounting
Stanley Corporation properly computed taxable income of $1,120,000 for the year ended December 31, 2020.
At the beginning of the year, January 1, 2020, Stanley had a deferred tax liability totaling $67,725 relating to cumulative temporary differences in depreciation. The enacted tax rate is 21% for all years.
Additional information for 2020:
At the end of 2020, management recorded an estimated litigation loss of $100,000 for injuries caused from a defective product. Management expects to pay this claim during 2021.
Depreciation for financial statement purposes totaled $375,000; however, tax depreciation was $445,000.
EPA penalties of $60,000 had been assessed during 2020. The firm recorded this in the financial statements but will not pay until April 30, 2021.
Instructions
What is the adjusted balance in the deferred tax liability account as of December 31, 2020?
What are the total cumulative depreciation differences that comprise this deferred income tax liability as of December 31, 2020?
Assume that a new tax rate of 28% for 2021 and future years was enacted into law at the beginning of 2021. Prepare a journal entry to adjust deferred taxes for this newly enacted tax rate.
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