Question

The following information is available for Wenger Corporation for 2019 (its first year of operations).1. Excess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse equally over the years 2020–2023.2. Deferral, for book purposes, of $20,000 of rent received in advance. The rent will be recognized in 2020.3. Pretax financial income, $300,000.4. Tax rate for all years, 20%.

Answer 1

Answer:Total income tax Liability = $72000

Explanation:

The question did not provide us with requirements. however after assessing the information provided in the question we can assume that the question requires us to calculate the income tax liability for the year  2019.

Differed tax arises as a result of temporary differences in the tax laws and accounting policies from example accounting strictly uses accrual system while most Receiver of tax revenue organisations in different countries they use a combination of Cash system and Accrual system.

Excess of Tax Depreciation = $40000

When tax depreciation is higher than Book Value Depreciation the Tax Base (cost - accumulated tax depreciation) will be lower that the Book value (cost - accumulated depreciation). Tax Base will be Lower by $40000  which indicates a Differed tax Liability.

Differed Tax Liability = $40 000 x 20% = $8000

Income received In advance

Income received in advance creates a Tax liability for the Wenger Corporation because Receiver of Tax revenue uses Cash system with regards to transactions of this nature.

Differed Tax Liability = $20000 x 20% = $4000

Income Tax = 300 000 x 20% = $60 000

Total income tax Liability = 60 000 + 8000 + 4000 = $72000