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CHAPTER 19
1.Oxford Corporation began operations in
2012
and reported pretax financial income of $227,110 for the year. Oxford’s tax depreciation exceeded its book depreciation by
$39,100
. Oxford’s tax rate for 2012 and years thereafter is 30
%
. In its December 31, 2012, balance sheet, what amount of deferred tax liability should be reported?
|
Deferred tax liability to be reported |
$ |
|
|
Excess depreciation on tax return |
$39,100 | |
|
Tax rate |
x 30 |
% |
| Deferred tax liability |
$11,730 |
2. At December 31, 2012, Percheron Inc. had a deferred tax asset of $
36,670
. At December 31,
2013
, the deferred tax asset is
$61,870
. The corporation’s 2013 current tax expense is $
61,730
.
What amount should Percheron report as total 2013 tax expense?
|
Total income tax expense for 2013 |
||||
|
Deferred tax asset, 12/31/13 |
$61,870 | |||
|
Deferred tax asset, 12/31/12 |
36,670 | |||
|
Deferred tax benefit for 2013 |
(25,200 |
) |
||
|
Current tax expense for 2013 |
61,730 | |||
|
$36,530 |
3. Conlin Corporation had the following tax information.
|
Year |
Taxable Income |
Tax Rate |
Taxes Paid |
|||
|
2010 |
$308,100 |
40% |
$123,240 |
|||
|
2011 |
$334,000 |
35% |
$116,900 |
|||
| 2012 |
$407,000 |
$142,450 |
In 2013, Conlin suffered a net operating loss of $478,400, which it elected to carry back. The 2013 enacted tax rate is 34%.
Prepare Conlin’s entry to record the effect of the loss carryback.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
Account Titles and Explanation |
Debit |
Credit |
|||
Benefit Due to Loss Carryback
=
$116,900 + [($478,400 – $334,000) x 35%] = $167,440
4.
|
Starfleet Corporation has one temporary difference at the end of 2012 that will reverse and cause taxable amounts of $57,100 in 2013, $63,520 in 2014 , and $80,780 in 2015. Starfleet’s pretax financial income for 2012 is $445,620, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2012. |
| (a) |
| (b) | 2013 | 2014 |
5. Complete the following statements by filling in the blanks.
|
In a period in which a taxable temporary difference reverses, the reversal will cause taxable income to be pretax financial income. |
||||||||||||||||
|
If a $78,670 balance in Deferred Tax Asset was computed by use of a 40% rate, the underlying cumulative temporary difference amounts to $. |
||||||||||||||||
|
(c) |
Deferred taxes recorded to account for permanent differences. |
|||||||||||||||
|
(d) |
If a taxable temporary difference originates in 2013, it will cause taxable income for 2013 to be pretax financial income for 2013. |
|||||||||||||||
|
(e) |
If total tax expense is $57,590 and deferred tax expense is $74,500, then the current portion of the expense computation is referred to as current tax of $ . |
|||||||||||||||
|
(f) |
If a corporation’s tax return shows taxable income of $110,080 for Year 2 and a tax rate of 40%, how much will appear on the December 31, Year 2, balance sheet for “Income taxes payable” if the company has made estimated tax payments of $35,240 for Year 2? $ . |
|||||||||||||||
|
(g) |
An increase in the Deferred Tax Liability account on the balance sheet is recorded by a to the Income Tax Expense account. |
|||||||||||||||
|
(h) |
An income statement that reports current tax expense of $86,710 and deferred tax benefit of $29,250 will report total income tax expense of $ . |
|||||||||||||||
|
(i) |
A valuation account is needed whenever it is judged to be that a portion of a deferred tax asset realized. |
|||||||||||||||
|
(j) |
If the tax return shows total taxes due for the period of $79,740 but the income statement shows total income tax expense of $57,680, the difference of $23,570 is referred to as deferred tax . |
|||||||||||||||
|
($78,670 divided by 40%) |
= |
$196,675 |
||||||||||||||
|
[($110,080 x 40%) – $35,240] |
$8,792 |
|||||||||||||||
|
($86,710 – $29,250) |
$57,460 |
6. The pretax financial income (or loss) figures for Synergetics Company are as follows.
|
2008 |
$176,400 |
|
2009 |
259,100 |
|
81,900 |
|
|
(176,400 |
|
|
(386,700 |
|
|
134,500 |
|
|
106,400 |
Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 40% tax rate for 2008 and 2009 and a 35% tax rate for the remaining years.
Prepare the journal entries for the years 2010 to 2014 to record income tax expense and the effects of the net operating loss carrybacks, and carryforwards, assuming Synergetics Company uses the carryback provision. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.)
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
2010 |
||||
|
2011 |
||||
|
2012 |
||||
|
(To record carryback.) |
||||
|
(To record carryforward.) |
||||
|
2013 |
||||
|
2014 |
||||
|
Income Taxes Payable |
($81,900 x 35%) |
$28,665 |
||
|
Income Tax Refund Receivable |
($176,400 x 40%) |
$70,560 |
||
|
Benefit Due to Loss Carryback (Income Tax Expense) |
||||
|
Benefit Due to Loss Carryforward (Income Tax Expense) |
[($386,700 – $81,900)x35%] |
$106,680 |
||
| Deferred Tax Asset |
($134,500×35%) |
$47,075 |
||
|
($106,400 x 35%) |
$37,240 |
7.
|
The following information has been obtained for the Gocker Corporation. 1. Prior to 2012, taxable income and pretax financial income were identical. 2. Pretax financial income is $1,704,400 in 2012 and $1,427,500 in 2013. 3. On January 1, 2012, equipment costing $1,292,000 is purchased. It is to be depreciated on a straightline basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Hint: Use the half-year convention for tax purposes, as discussed in Appendix 11A.) 4. Interest of $66,800 was earned on tax-exempt municipal obligations in 2013. 5. Included in 2013 pretax financial income is an extraordinary gain of $202,500, which is fully taxable. 6. The tax rate is 36% for all periods. 7. Taxable income is expected in all future years. |
|
(a) Compute taxable income and income taxes payable for 2013. Taxable income $ Income taxes payable $ Book Depreciation Tax Depreciation Difference 2012 $161,500 $129,200 * $32,300 2013 161,500 258,400 (96,900 ) 2014 161,500 258,400 (96,900 ) 2015 161,500 258,400 (96,900 ) 2016 161,500 258,400 (96,900 ) 2017 161,500 129,200 * 32,300 2018 161,500 0 161,500 2019 161,500 0 161,500 Totals $1,292,000 $1,292,000 $ 0 *($1,292,000 ÷ 5) x 0.5 Pretax financial income for 2013 $1,427,500 Nontaxable interest (66,800 ) Excess depreciation ($258,400 – $161,500) (96,900 ) Taxable income for 2013 $1,263,800 Tax rate 36 % Income taxes payable for 2013 $454,968 |
8. Which of the following is false regarding accounting for deferred taxes under IFRS?
|
Tax effects of certain items are recognized in equity. |
|
The rate used to compute deferred taxes is either the enacted tax rate, or a substantially enacted tax rate (virtually certain). |
|
A deferred tax liability is classified as current or noncurrent based on the classification of the asset or liability to which it relates. |
|
A deferred tax asset is recognized up to the amount that is probable to be realized. |
9. With regard to recognition of deferred tax assets, IFRS requires
|
Approach |
Recognition |
|
Impairment approach Recognize an asset up to the amount that is probable to be realized |
|
Affirmative judgment Recognize an asset up to the amount that is probable to be realized |
|
Impairment approach Recognize asset in full, reduced by valuation allowance if it’s more likely than not that all or a portion of the asset won’t be realized |
|
Affirmative judgment Recognize asset in full, reduced by valuation allowance if it’s more likely than not that all or a portion of the asset won’t be realized |
