13–31
As the above journal entries indicate, Lance has no deferred tax assets or liabilities
under U.S. GAAP because the same method is used for book and tax. Under IFRS, a
P13-10. Converting book income to taxable income and computation of taxes
payable
Requirement 1:
The calculation of Madison Corporation’s taxable income for 2014 is as
follows:
Pretax book income $101,500
13–32
P13-11 Calculating taxes payable, deferred taxes, and tax expense
Requirement 1:
Pretax income (per books) $223,000
Adjustments for temporary differences:
Bad debt expense-future deductible amount 24,000
43,000
Tax rate x 40%
Increase in deferred tax asset $17,200
13–33
P13-12. Converting from taxable income to book income
Requirement 1:
Taxable income (given) $ 98,000
Adjustments for permanent differences:
57,000
Tax rate x 40%
Increase in deferred tax liability $22,800
Requirement 3:
P13-13. Making entries for uncertain tax positions
Requirement 1:
13–34
13–35
DR Tax expense $3,700(a)
CR Income taxes payable $3,500(b)
CR Tax contingency reserve 200(c)
––––––––––––––––
P13-14. Making entries for uncertain tax positions
Year 1 entries for this temporary uncertain tax position.
DR Tax expense $560(a)
CR Tax contingency reserve $560
13–36
CR Deferred tax asset $40
–––––––––––
(b) FIN48 tax basis for expenditure at end of Year 2 $1,300
P13-15 Comprehensive tax allocation problem
Requirement 1:
Flower Company
Calculation of Taxable Income and Taxes Payable
Computation of Taxable Income:
Income before adjustment for temporary differences $310,000
Adjustments for Temporary Differences:
Excess of tax depreciation over book depreciation (80,000)1
Rent income included in book income in 2014, taxed in 2015 (800)
Rent expense deducted for tax purposes when paid,
Operating loss carryforward used (22,000)
Taxable income $ 21,200
Tax rate x 40%
Taxes payable $ 8,480
1Book depreciation = $600,000/5 years = $120,000
13–37
13–38
Requirement 2:
Computation of change in deferred tax asset and deferred tax liability
accounts:
Deferred Deferred
13–39
P13-16. Determining taxes payable, deferred taxes, and tax expense
Requirement 1:
Reality Corp.
Calculation of Taxable Income and Taxes Payable
Computation of Taxable Income:
Income before adjustment for temporary differences $134,000
Adjustments for temporary differences:
Excess of tax depreciation over book depreciation (125,000)
Excess of equity in investee earnings over dividends
Received, less portion considered permanent due to
Amount recognized for tax 10,000 (20,000)
Warranty temporary difference:
Amount recognized per book 50,000
Amount recognized for tax (15,000) 35,000
Bad debt temporary difference:
13–40
Requirement 2:
Computation of change in deferred tax asset and deferred tax liability
accounts
Deferred Tax Deferred Tax
Temporary Difference Asset Liability
(org) Depreciation
(org) Rent received in advance
($10,000 x 40%) 4,000 DR
(org) Deferred profit on sale of land
($20,000 x 40%) 8,000 CR
(org/rev) Warranty cost temporary difference
Change in deferred tax asset (Liability) $16,000 DR $62,000 CR
Requirement 3: Determination of Tax Expense for 2014
Tax Expense = Taxes Payable + Increase in Deferred Tax Liability –
Increase in Deferred Tax Asset (including effect of increase
in valuation allowance)
13–41
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Financial Reporting and Analysis (6th Ed.)
Chapter 13 Solutions
Income Tax Reporting
Cases
Cases
C13-1 Pepsico: Analyzing the tax note
Requirement 1 ($ in millions):
Entry for 2010:
DR Income tax expense
$1,894
CR Income tax payable
$1,797
CR Net deferred tax asset/liability
97
Entry for 2011:
DR Income tax expense
$2,372
CR Income tax payable
$755
CR Net deferred tax asset/liability
1,617
Entry for 2012:
DR Income tax expense
$2,090
CR Income tax payable
$2,004
CR Net deferred tax asset/liability
86
Requirement 2:
affiliates are generally accounted for under the equity method whereby investment
income is recognized for Pepsico’s pro rata share of each affiliate’s income. (See
chapter 16.) This generally results in book income recognition earlier than taxable
income is recognized, which is when dividends are received. The temporary
difference creates a deferred tax liability.