Problem #1 On January 1, 2013, Ameen Company purchased a building for $36 million
On January 1, 2013, Ameen Company purchased a building for $36 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2015, the book value of the building was $30 million and its tax basis was $20 million. At December 31, 2016, the book value of the building was $28 million and its tax basis was $13 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2016 was $45 million.
Prepare the appropriate journal entry to record Ameen’s 2016 income taxes. Assume an income tax rate of 40%.
In 2016, DFS Medical Supply collected rent revenue for 2017 tenant occupancy. For income tax reporting, the rent is taxed when collected. For financial statement reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy the rental property. The deferred portion of the rent collected in 2016 amounted to $300,000 at December 31, 2016. DFS had no temporary differences at the beginning of the year.
Assume an income tax rate of 40% and 2016 income tax payable of $950,000, prepare the journal entry to record income taxes for 2016.
At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $30 million attributable to a temporary book–tax difference of $75 million in a liability for estimated expenses. At the end of 2016, the temporary difference is $70 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2016 is $180 million and the tax rate is 40%.
Prepare the journal entry(s) to record Payne’s income taxes for 2016, assuming it is more likely than not that the deferred tax asset will be realized.
Wynn Sheet Metal reported a net operating loss of $100,000 for financial reporting and tax purposes in 2016. The enacted tax rate is 40%. Taxable income, tax rates, and income taxes paid in Wynn’s first four years of operation were as follows:
RatesIncome Taxes Paid 2012 $60,000 30% $18,000 2013 70,000 30 21,000 2014 80,000 40 32,000 2015 60,000 45 27,000