Problem:
Snarley Corp. had the following balances in selected accounts as of January 1, 2013:
Accrued Warranty Liability 1,500 credit
Accumulated Depreciation 225,000 credit
Deferred Tax Asset - AWL ?
Deferred Tax Asset - NOL c/f 9,620 debit
Valuation Allowance - NOL 2,960 credit
Deferred Tax Liability - Cap. Assets 61,050 credit
During 2013, the following events occurred:
- Warranty expense was 11,500 and actual cash outlays for warranty work were 11,000
- Depreciation of $45,000 was taken. Snarley took a MACRS deduction of only $22,000 in 2013 to help use up its NOL carry forward.
- Snarley reported a loss (before tax) of $6,000 on its income statement, which included a fine of $1,000 for violating campaign contribution laws in the state of Indiana, a life insurance premium of $1,000 on its CEO and president Rush Limber, and interest income of $500 on municipal bonds from Bloomington, Indiana.
- The tax rate was increased to 38% for all tax years beginning in 2014. It remained at its old rate of 37% for 2013.
Calculate taxable income, current income tax expense, deferred income tax expense, and the ending balances in the deferred tax accounts and valuation allowances. Should any net operating loss carry forward remain after 2013, Snarley management believes that half of it will be utilized before the end of the remaining carry forward period. Show the journal entry needed to record all income tax items.
Also, show the income statement for Snarley beginning with net income before tax, explicitly showing the use of the NOL carry forward. Calculate the cumulative amounts for accumulated depreciation and marcs as of the end of 2013 (no assets were bought or sold during the year).
Additional Information:
This question is from Finance as well as it is about computing the taxable income, current income tax expense, deferred income tax expense as well as ending balances in deferred tax accounts as well as valuation allowances. These and the carry forwarded income tax has been computed in the solution.