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CHAPTER 19 ACCOUNTING FOR INCOME TAXES - PROBLEMS

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Pr. 19-114?Differences between accounting and taxable income and the effect on deferred taxes.;The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the year ended December 31, 2010, its first year of operations. The enacted income tax rate is 30% for all years.;Pretax accounting income $700,000;Excess tax depreciation (320,000);Litigation accrual 70,000;Unearned rent revenue deferred on the books but appropriately;recognized in taxable income 50,000;Interest income from New York municipal bonds (20,000);Taxable income $480,000;1. Excess tax depreciation will reverse equally over a four-year period, 2011-2014.;2. It is estimated that the litigation liability will be paid in 2014.;3. Rent revenue will be recognized during the last year of the lease, 2014.;4. Interest revenue from the New York bonds is expected to be $20,000 each year until their maturity at the end of 2014.;Instructions;(a) Prepare a schedule of future taxable and (deductible) amounts.;(b) Prepare a schedule of the deferred tax (asset) and liability.;(c) Since this is the first year of operations, there is no beginning deferred tax asset or liability. Compute the net deferred tax expense (benefit).;(d) Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2010.;Pr. 19-115?Multiple temporary differences.;The following information is available for the first three years of operations for Cooper Company;1. Year Taxable Income;2010 $500,000;2011 330,000;2012 400,000;2. On January 2, 2010, heavy equipment costing $600,000 was purchased. The equipment had a life of 5 years and no salvage value. The straight-line method of depreciation is used for book purposes and the tax depreciation taken each year is listed below;Tax Depreciation;2010 2011 2012 2013 Total;$198,000 $270,000 $90,000 $42,000 $600,000;3. On January 2, 2011, $240,000 was collected in advance for rental of a building for a three-year period. The entire $240,000 was reported as taxable income in 2011, but $160,000 of the $240,000 was reported as unearned revenue at December 31, 2011 for book purposes.;4. The enacted tax rates are 40% for all years.;Instructions;(a) Prepare a schedule comparing depreciation for financial reporting and tax purposes.;(b) Determine the deferred tax (asset) or liability at the end of 2010.;(c) Prepare a schedule of future taxable and (deductible) amounts at the end of 2011.;(d) Prepare a schedule of the deferred tax (asset) and liability at the end of 2011.;(e) Compute the net deferred tax expense (benefit) for 2011.;(f) Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2011.;Pr. 19-116?Deferred tax asset.;Farmer Inc. began business on January 1, 2010. Its pretax financial income for the first 2 years was as follows;2010 $240,000;2011 560,000;The following items caused the only differences between pretax financial income and taxable income.;Pr. 19-116 (cont.);1. In 2010, the company collected $180,000 of rent, of this amount, $60,000 was earned in 2010, the other $120,000 will be earned equally over the 2011?2012 period. The full $180,000 was included in taxable income in 2010.;2. The company pays $10,000 a year for life insurance on officers.;3. In 2011, the company terminated a top executive and agreed to $90,000 of severance pay. The amount will be paid $30,000 per year for 2011?2013. The 2011 payment was made. The $90,000 was expensed in 2011. For tax purposes, the severance pay is deductible as it is paid.;The enacted tax rates existing at December 31, 2010 are;2010 30% 2012 40%;2011 35% 2013 40%;Instructions;(a) Determine taxable income for 2010 and 2011.;(b) Determine the deferred income taxes at the end of 2010, and prepare the journal entry to record income taxes for 2010.;(c) Prepare a schedule of future taxable and (deductible) amounts at the end of 2011.;(d) Prepare a schedule of the deferred tax (asset) and liability at the end of 2011.;(e) Compute the net deferred tax expense (benefit) for 2011.;(f) Prepare the journal entry to record income taxes for 2011.;(g) Show how the deferred income taxes should be reported on the balance sheet at December 31, 2011.;Pr. 19-117?Interperiod tax allocation with change in enacted tax rates.;Murphy Company purchased equipment for $180,000 on January 2, 2010, its first day of operations. For book purposes, the equipment will be depreciated using the straight-line method over three years with no salvage value. Pretax financial income and taxable income are as follows;2010 2011 2012;Pretax financial income $224,000 $260,000 $300,000;Taxable income 200,000 260,000 324,000;The temporary difference between pretax financial income and taxable income is due to the use of accelerated depreciation for tax purposes.;Instructions;(a) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate applicable to all three years is 30%.;(b) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate as of 2010 is 30% but that in the middle of 2011, Congress raises the income tax rate to 35% retroactive to the beginning of 2011.

 

Paper#35543 | Written in 18-Jul-2015

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