Answers
| 1) | ||
| CPS Transportation | ||
| INCOME TAX EXPENSE AND NET INCOME | ||
| For the Year Ended December 31, 2021 | ||
| Income before income taxes | $1,060,000.00 | |
| Less: Income tax expense: | ||
| Current (25% x [$1,060,000 –84,000]) | $244,000.00 | |
| Deferred (see calculation below) | $21,000.00 | $265,000.00 |
| Net income | $795,000.00 | |
| Deferred income tax expense | ||
| Reversal of temporary differences from depreciation giving rise to future taxable amounts | ||
| 2022 | -$24,000.00 | |
| 2023 | -$34,000.00 | |
| 2024 | -$44,000.00 | |
| Total | -$102,000.00 | |
| Effective tax rate for years 2022 through 2024 | 25% | |
| Deferred tax liability, Dec. 31, 2018 | -$25,500.00 | |
| Less: Dec. 31, 2017 deferred tax liability | ||
| Temporary difference-depreciation | ||
| 2021 | $84,000.00 | |
| 2022 | -$24,000.00 | |
| 2023 | -$34,000.00 | |
| 2024 | -$44,000.00 | |
| Total | -$18,000.00 | |
| Effective tax rate for years 2021 through 2024 | 25.00% | |
| Deferred tax liability, Dec. 31, 2021 | -$4,500.00 | |
| Increase (credit) needed | -$21,000.00 | |
| 2) | ||
| CPS Transportation’s interest expense for the year ended December 31, 2018 | ||
| Capital lease obligation : (353061 x 10%) | $35,360.10 | |
| Bonds payable = $712,643.60 x 10%/2 | $35,632.18 | |
| Total Interest Expense | $70,992.28 | |
| Face Value | $760,000.00 | |
| Coupon payment = PMT = 760000x 9%/2 | $34,200.00 | |
| Rate = 10%/2 | 5.00% | |
| Period = 10 x 2 | 20 | |
| Current Price = PV | $712,643.60 | |
| 3) | ||
| CPS Transportation | ||
| LONG-TERM LIABILITIES SECTION OF BALANCE SHEET | ||
| December 31, 2018 | ||
| Long-term liabilities: | ||
| Lease liability - 12 payments of $48000 due annually on January 1 | $353,601.00 | |
| Less: current portion ($48000 – 353061) | $12,639.90 | $340,961.10 |
| 9% bonds payable due June 30, 2028, | $760,000.00 | |
| Less: unamortized discount $47,356.40 - ((4.5% x $760,000) - 35,632.18) | $48,788.58 | $711,211.42 |
| Deferred income tax liability (Part 1) | $25,500.00 | |
| Total long-term liabilities | $1,077,672.52 | |
| Face Value | $760,000.00 | |
| Issued Price | $712,643.60 | |
| Discount | $47,356.40 | |
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