Problem 16–4
2018 2019 2020 2021
Pretax accounting income $60,000 $80,000 $70,000 $70,000
Cumulative
Temporary
2018 2019 2020 2021 Difference
Straight-line 30,000 30,000 30,000 30,000
Tax depreciation (39 ,600) (52 ,800) (18 ,000) (9 ,600)
Temporary
2018 2019 2020 2021
Cumulative difference $ 9,600 $32,400 $20,400 $ 0
Tax rate 30 % 40 % 40 % 40 %
$(8,160)
Problem 16–4 (concluded)
Journal entry at the end of 2018
Income tax expense (to balance) 9,000
Journal entry at the end of 2019
Income tax expense (to balance) 18,240
Journal entry at the end of 2020
Income tax expense (to balance) 16,000
Journal entry at the end of 2021
Income tax expense (to balance) 16,000
Problem 16–5
2018 2019 2020 2021
Pretax accounting income $350,000 $270,000 $340,000
$380,000
Cumulative
Temporary
2018 2019 2020 2021 Difference
Temporary
difference: (50,000) 20,000 25,000 5,000 = 0
2018 20,000 25,000 5,000 =
2018 2019 2020 2021
Cumulative difference $50,000 $30,000 $ 5,000$ 0
(1,250)
Problem 16–5 (concluded)
Journal entry at the end of 2018
Income tax expense (to balance) 105,000
Journal entry at the end of 2019
Income tax expense (to balance) 79,500
Journal entry at the end of 2020
Income tax expense (to balance) 81,250
Journal entry at the end of 2021
Income tax expense (to balance) 95,000
Problem 16–6
Requirement 1
($ in millions)
Income tax expense (to balance) 16.4
Requirement 2
($ in millions) Current Future Taxable Deferred
Year (Deductible) Tax
2018 Amounts Liab. Asset
2019 2020 2021
Pretax accounting income 41
Temporary differences:
Depreciation (30) 30*
Prepaid insurance (9) 9
Deferred
Tax
Liab. Asset
Ending balances (balances currently needed) $14.1 $2.1
Problem 16–6 (concluded)
Deferred Tax Asset Deferred Tax Liability
0 0
Journal entry at the end of 2018
Income tax expense (to balance) 15.2
* When a portion of a temporary difference has yet to originate, as in the
case of depreciation here, only the reversals of the temporary difference
at the balance sheet date ($30) can be scheduled. Future originations
2019 2020 2021
Depreciation (30) (60) 50 40
Problem 16–7
Requirement 1
($ in millions)
Future
Current Taxable Future Future
Year (Deductible) Taxable Deductible
2018 Amounts Amounts Amounts
2019 2020 [total] [total]
Pretax accounting income 76
Permanent difference:
Fine paid 2
Temporary differences:
25 (9)
Deferred Tax Asset Deferred Tax Liability
Deferred
Tax
Liab. Asset
Ending balances (balances currently needed) $10.0 $3.6
Problem 16–7 (concluded)
Journal entry at the end of 2018
Income tax expense (to balance) 31.2
Requirement 2
($ in millions)
Income before income tax $76.0
Requirement 3
Problem 16–8
Requirement 1
The expense for life insurance premiums is a permanent difference each year
because it’s recognized as an income statement expense, but is not
Problem 16–8 (continued)
Requirement 2
Current Future Future
($ in millions) Year Taxable Deductible
2018 Amounts Amounts
[2019] [2019]
Pretax accounting income 128
Permanent difference:
Life insurance premiums 2
Temporary differences:
30 (35)
Deferred Tax Asset Deferred Tax Liability
6 0
Deferred tax Deferred tax
liability asset