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E19-19B (Two Differences, One Rate, Beginning Deferred Balance, Compute Pretax Financial Income) Low4All Stores establishes a $200 million liability at the end of 2014 for the estimated costs to settle a class-action lawsuit alleging discrimination. The s

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Question

E19-19B (Two Differences, One Rate, Beginning Deferred Balance, Compute Pretax Financial Income) Low4All Stores establishes a $200 million liability at the end of 2014 for the estimated costs to settle a class-action lawsuit alleging discrimination. The settlement is expected to be approved by the Court in 2015 at which time the settlement will be paid. The company also has $125 million of temporary differences the end of 2014 due to installment sales. The $125 million will reverse in equal installments over the next five years.;The enacted tax rate for all years is 40%, and the company has $351 million of taxable income in 2014.;Low4All Stores expects to have taxable income in 2015.;Instructions;(a) Determine the deferred taxes to be reported at the end of 2014.;(b) Indicate how the deferred taxes computed in (a) are to be reported on the balance sheet.;(c) Assuming that the only deferred tax account at the beginning of 2014 was a deferred tax liability of $60 million, draft the income tax expense portion of the income statement for 2014, beginning with the line ?Income before income taxes.? (Hint:You must first compute (1) the amount of temporary difference underlying the beginning $60 million deferred tax liability, then (2) the amount of temporary differences originating or reversing during the year, then (3) the amount of pretax financial income.)

 

Paper#75296 | Written in 18-Jul-2015

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