Exercise 16–15
Requirement 1
($ in millions)
Current Future
Year Deductible
Amounts Total
2018 2019 2020 2021 2022
Pretax accounting income 14
Temporary difference:
Deferred Tax Asset Deferred Tax Asset:
Journal entry at the end of 2018
Requirement 2
($ in millions)
Income before income tax $14.0
Exercise 16–16
Requirement 1
($ in millions)
Current Future Future
Year Taxable Taxable
2018 Amounts Amounts
2019 2020 2021 2022 [total]
Pretax accounting income 33
Temporary difference:
Deferred Tax Liability Deferred Tax Liability
Journal entry at the end of 2018
Exercise 16–16 (continued)
Requirement 2
($ in millions)
Current Future Future
Year Taxable Taxable
2019 Amounts Amounts
2020 2021 2022 [total]
Pretax accounting income 50
Temporary difference:
Advance rent payment 2 2 2 2 6
Deferred Tax Liability Deferred Tax Liability
3.2 Ending balance (balance currently needed) $ 2.4
Journal entry at the end of 2019
Exercise 16–16 (continued)
Requirement 3
($ in millions)
Current Future Future
Year Taxable Taxable
2019 Amounts Amounts
2020 2021 2022 [total]
Pretax accounting income 50
Temporary difference:
Deferred Tax Liability Deferred Tax Liability
3.2 Ending balance (balance currently needed) $ 1.8
Journal entry at the end of 2019
Income tax payable (determined above)
20.8
Exercise 16–16 (concluded)
Requirement 4
Without the change, income tax expense in 2019 [requirement 2] is $20
million. However, when the tax rate changes to 30%, the deferred tax liability
must be reduced to reflect the fact that future taxable amounts will be taxed at a
Exercise 16–17
A deferred tax liability is established using the currently enacted tax rate for
($ in millions)
When a company revises a previous estimate, prior financial statements are
not revised. No adjustment is made to existing accounts. A disclosure note should
describe the effect of a change in estimate on income before extraordinary items,
net income, and related per share amounts for the current period.
Exercise 16–18
Exercise 16–19
Requirement 1
($ in
millions)
Income tax expense (to balance)……………………..………….……… 80
Requirement 2
($ in millions)
Income before income tax $200
Exercise 16–20
Requirement 1
Because the loss year is the company’s first year of operations, the carryback
option is unavailable. The loss is carried forward.
($ in thousands)
Current Future
Year Deductible
2018 Amounts
[total]
Net operating loss (375)
Deferred Tax Asset Deferred Tax Asset:
Journal entry at the end of 2018
Since the weight of available evidence suggests future taxable income
sufficient to benefit from future deductible amounts from the net operating loss
carryforward, no valuation allowance is needed.
Exercise 16–20 (concluded)
Requirement 2
($ in thousands)
Exercise 16–21
Requirement 1
($ in thousands)
Current
Prior Years Year
2016 2017 2018
Net operating loss (100)
Journal entry at the end of 2018
Requirement 2
($ in thousands)