Brief Exercise 16–9
Current year Future taxable amount
Pretax accounting income $ 900,000
Permanent difference:
Taxable income (tax return) $ 760,000
Journal entry
Income tax expense (to balance) 352,000
Brief Exercise 16–10
($ in 000s)
Current Future
Year Deductible
2018 Amounts Total
2019 2020 2021
Pretax accounting income 291
Temporary difference:
Taxable income (tax return) 300
Journal entry at the end of 2018
Income tax expense (to balance) 117
Brief Exercise 16–11
Superior should reduce its deferred tax liability this year by $4.5 million:
($ in millions)
Deferred tax liability last year $8.0 ($20 future taxable amt. × 40%)
Brief Exercise 16–12
Because the loss year is Nile.com’s first year of operations, the carryback
option is unavailable. The loss is carried forward.
Journal entry
Brief Exercise 16–13
Because the net operating loss is less than the previous two years taxable
income, AirParts cannot get back all taxes paid those two years. It can reduce
taxable income from two years ago by $15 million (to zero) and last year’s taxable
income by $10 million and get a refund of $10 million of the taxes paid those
years.
Journal entry
Brief Exercise 16–14
Taxable income reflects the benefit of the interest being tax-free, so the tax
currently payable is $55 million x 40% or $22 million. But, since it’s more likely
than not that the interest isn’t tax-free, that benefit can’t be recognized in the tax
expense. So, First Bank would record tax expense as if the interest is fully taxable,
income tax payable that reflects its tax-free benefits, and a liability that represents
the potential obligation to pay the additional taxes if the tax-free status is not
ultimately upheld:
($ in millions)
The $2 million difference is the tax benefit not recognized in the income
Brief Exercise 16–15
Intraperiod tax allocation means the total income tax obligation for a reporting
period is allocated among the income statement items that gave rise to the income
tax. The following items should be reported net of their respective income tax
effects:
Southeast Airlines had pretax earnings of $55 million before the gain on
disposal of a discontinued operation of $10 million. Since the company’s tax rate is
$ in millions
Income from continuing operations $22
Brief Exercise 16–16
If Southeast Airlines prepares its financial statements according to IFRS, the
amount of income tax expense that Southeast should report is $65 million x 40%,
Exercise 16–1
Exercises
Requirement 1
Since taxable income is less than pretax accounting income, a future taxable
Income tax expense (to balance) 140,000
As a result, net income is $260,000:
Requirement 2
In its balance sheet, Alvis will report the $52,500 deferred tax liability among
long-term liabilities and the $87,500 income tax payable as a current liability.
Exercise 16–2
Requirement 1
($ in millions)
Current Future
Year Taxable
2018 Amount
[total]
Pretax accounting income 45
Temporary difference:
Deferred tax liability 6
Deferred Tax Liability Deferred Tax Liability
Journal entry at the end of 2018
Income tax expense (to balance) 18
Requirement 2
($ in millions)
Exercise 16–3
($ in millions) December 31
Cost 2018 2019 2020 2021
Accounting
book value $80 (20) $60 (20) $40 (20) $20 (20) $0
Exercise 16–4
Income tax expense (to balance) 830,000
Exercise 16–5
Income tax expense (to balance) 30,035,000
Exercise 16–6
D 1. Accrual of loss contingency; tax-deductible when paid.
D 2. Newspaper subscriptions: taxable when received; recognized for
financial reporting when the performance obligation is satisfied.
T 3. Prepaid rent; tax-deductible when paid.