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The long-term liabilities section of CPS Transportation's December 31, 2017, balance sheet included the following: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) a. A lease liability with 15 remaining lease payments of $26,000 each, due annually on January 1: Lease liability Less: current portion $ 197,758 6,224 $191,534 The incremental borrowing rate at the inception of the lease was 11% and the lessor's implicit rate, which was known by CPS Transportation, was 10%. b. A deferred income tax liability due to a single temporary difference. The only difference between CPS Transportation's taxable income and pretax accounting income is depreciation on a machine acquired on January 1, 2017, for $480,000. The machine's estimated useful life is five years, with no salvage value. Depreciation is computed using the straight-line method for financial reporting purposes and the MACRS method for tax purposes. Depreciation expense for tax and financial reporting purposes for 2018 through 2021 is as follows: Year 2018 2019 2020 2021 MACRS Depreciation $160,000 80,000 70,000 60,000 Straight-line Depreciation $ 96,000 96,000 96,000 96,000 Difference $ 64,000 (16,000) (26,000) (36,000) The enacted federal income tax rates are 35% for 2017 and 40% for 2018 through 2021. For the year ended December 31, 2018, CPS's income before income taxes was $880,000. On July 1, 2018, CPS Transportation issued $580,000 of 9% bonds. The bonds mature in 12 years and interest is payable each January 1 and July 1. The bonds were issued at a price to yield the investors 10%. CPS records interest at the effective interest rate. Required: 1. Determine CPS Transportation's income tax expense and net income for the year ended December 31, 2018. 2. Determine CPS Transportation's interest expense for the year ended December 31, 2018. 3. Prepare the long-term liabilities section of CPS Transportation's December 31, 2018, balance sheet. Required 1 Required 2 Required 3 Determine CPS Transportation's income tax expense and net income for the year ended December 31, 2018. CPS TRANSPORTATION Income Tax Expense and Net Income For the Year Ended December 31, 2018 Income before income taxes Income tax expense: Current Deferred Net income Required 1 Required 2 Required 3 Determine CPS Transportation's interest expense for the year ended December 31, 2018. (Do not round intermediate calculations. Round final answers to the nearest whole dollars.) CPS TRANSPORTATION Calculation of Interest Expense For the Year Ended December 31, 2018 Capital lease obligation interest Bond interest payable Total interest expense Required 1 Required 2 Required 3 Prepare the long-term liabilities section of CPS Transportation's December 31, 2018, balance sheet. (Do not round intermediate calculations. Round final answers to the nearest whole dollars.) CPS TRANSPORTATION Long-Term Liabilities Section of Balance Sheet December 31, 2018 Long-term liabilities: Lease liability Less: current portion Bonds payable, net Deferred income tax liability Total long-term liabilities The long-term liabilities section of CPS Transportation's December 31, 2017, balance sheet included the following: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) a. A lease liability with 15 remaining lease payments of $26,000 each, due annually on January 1: Lease liability Less: current portion $ 197,758 6,224 $191,534 The incremental borrowing rate at the inception of the lease was 11% and the lessor's implicit rate, which was known by CPS Transportation, was 10%. b. A deferred income tax liability due to a single temporary difference. The only difference between CPS Transportation's taxable income and pretax accounting income is depreciation on a machine acquired on January 1, 2017, for $480,000. The machine's estimated useful life is five years, with no salvage value. Depreciation is computed using the straight-line method for financial reporting purposes and the MACRS method for tax purposes. Depreciation expense for tax and financial reporting purposes for 2018 through 2021 is as follows: Year 2018 2019 2020 2021 MACRS Depreciation $160,000 80,000 70,000 60,000 Straight-line Depreciation $ 96,000 96,000 96,000 96,000 Difference $ 64,000 (16,000) (26,000) (36,000) The enacted federal income tax rates are 35% for 2017 and 40% for 2018 through 2021. For the year ended December 31, 2018, CPS's income before income taxes was $880,000. On July 1, 2018, CPS Transportation issued $580,000 of 9% bonds. The bonds mature in 12 years and interest is payable each January 1 and July 1. The bonds were issued at a price to yield the investors 10%. CPS records interest at the effective interest rate. Required: 1. Determine CPS Transportation's income tax expense and net income for the year ended December 31, 2018. 2. Determine CPS Transportation's interest expense for the year ended December 31, 2018. 3. Prepare the long-term liabilities section of CPS Transportation's December 31, 2018, balance sheet. Required 1 Required 2 Required 3 Determine CPS Transportation's income tax expense and net income for the year ended December 31, 2018. CPS TRANSPORTATION Income Tax Expense and Net Income For the Year Ended December 31, 2018 Income before income taxes Income tax expense: Current Deferred Net income Required 1 Required 2 Required 3 Determine CPS Transportation's interest expense for the year ended December 31, 2018. (Do not round intermediate calculations. Round final answers to the nearest whole dollars.) CPS TRANSPORTATION Calculation of Interest Expense For the Year Ended December 31, 2018 Capital lease obligation interest Bond interest payable Total interest expense Required 1 Required 2 Required 3 Prepare the long-term liabilities section of CPS Transportation's December 31, 2018, balance sheet. (Do not round intermediate calculations. Round final answers to the nearest whole dollars.) CPS TRANSPORTATION Long-Term Liabilities Section of Balance Sheet December 31, 2018 Long-term liabilities: Lease liability Less: current portion Bonds payable, net Deferred income tax liability Total long-term liabilities

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