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CHAPTER 19 ACCOUNTING FOR INCOME TAXES - EXERCISES

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Ex. 19-105?Computation of taxable income.;The records for Bosch Co. show this data for 2011;? Gross profit on installment sales recorded on the books was $360,000. Gross profit from collections of installment receivables was $270,000.;? Life insurance on officers was $3,800.;? Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Bosch may deduct 14% for 2011.;? Interest received on tax exempt Iowa State bonds was $9,000.;? The estimated warranty liability related to 2011 sales was $19,600. Repair costs under warranties during 2011 were $13,600. The remainder will be incurred in 2012.;? Pretax financial income is $600,000. The tax rate is 30%.;Instructions;(a) Prepare a schedule starting with pretax financial income and compute taxable income.;(b) Prepare the journal entry to record income taxes for 2011.;Ex. 19-106?Future taxable and deductible amounts.;Define temporary differences, future taxable amounts, and future deductible amounts.;Ex. 19-107?Deferred income taxes.;Pole Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows;Pretax financial income $ 420,000;Extra depreciation taken for tax purposes (1,050,000);Estimated expenses deductible for taxes when paid 840,000;Taxable income $ 210,000;Use of the depreciable assets will result in taxable amounts of $350,000 in each of the next three years. The estimated litigation expenses of $840,000 will be deductible in 2013 when settlement is expected.;Instructions;(a) Prepare a schedule of future taxable and deductible amounts.;(b) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2010, assuming a tax rate of 40% for all years.;Ex. 19-108?Deferred income taxes.;Hunt Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows;Pretax financial income $ 750,000;Estimated expenses deductible for taxes when paid 1,200,000;Extra depreciation (1,350,000);Taxable income $ 600,000;Estimated warranty expense of $800,000 will be deductible in 2011, $300,000 in 2012, and $100,000 in 2013. The use of the depreciable assets will result in taxable amounts of $450,000 in each of the next three years.;Instructions;(a) Prepare a table of future taxable and deductible amounts.;(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2010, assuming an income tax rate of 40% for all years.;Ex. 19-109?Recognition of deferred tax asset.;(a) Describe a deferred tax asset.;(b) When should a deferred tax asset be reduced by a valuation allowance?;Ex. 19-110?Permanent and temporary differences.;Listed below are items that are treated differently for accounting purposes than they are for tax purposes. Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they will create deferred tax assets or deferred tax liabilities.;1. Investments accounted for by the equity method.;2. Advance rental receipts.;3. Fine for polluting.;4. Estimated future warranty costs.;5. Excess of contributions over pension expense.;6. Expenses incurred in obtaining tax-exempt revenue.;7. Installment sales.;8. Excess tax depreciation over accounting depreciation.;9. Long-term construction contracts.;10. Premiums paid on life insurance of officers (company is the beneficiary).;Ex. 19-111?Permanent and temporary differences.;Indicate and explain whether each of the following independent situations should be treated as a temporary difference or a permanent difference.;(a) For accounting purposes, a company reports revenue from installment sales on the accrual basis. For income tax purposes, it reports the revenues by the installment method, deferring recognition of gross profit until cash is collected.;(b) Pretax accounting income and taxable income differ because 80% of dividends received from U.S. corporations was deducted from taxable income, while 100% of the dividends received was reported for financial statement purposes.;(c) Estimated warranty costs (covering a three-year warranty) are expensed for accounting purposes at the time of sale but deducted for income tax purposes when paid.;Ex. 19-112?Temporary differences.;There are four types of temporary differences. For each type: (1) indicate the cause of the difference, (2) give an example, and (3) indicate whether it will create a taxable or deductible amount in the future.;Ex. 19-113?Operating loss carryforward.;In 2010, its first year of operations, Kimble Corp. has a $900,000 net operating loss when the tax rate is 30%. In 2011, Kimble has $360,000 taxable income and the tax rate remains 30%.;Instructions;Assume the management of Kimble Corp. thinks that it is more likely than not that the loss carryforward will not be realized in the near future because it is a new company (this is before results of 2011 operations are known).;(a) What are the entries in 2010 to record the tax loss carryforward?;(b) What entries would be made in 2011 to record the current and deferred income taxes and to recognize the loss carryforward? (Assume that at the end of 2011 it is more likely than not that the deferred tax asset will be realized.)

 

Paper#35557 | Written in 18-Jul-2015

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