Problem 16–8 (continued)
Requirement 4
($ in millions)
Current Future Future
Year Taxable Deductible
2017 Amounts Amounts
[2018] [2018]
Pretax accounting income 183
Permanent difference:
0 (20)
Enacted tax rate 40% 40% 40%
Deferred Tax Asset
Deferred Tax Liability
14
12
0
Deferred tax Deferred tax
liability asset
Ending balances (balances currently needed) $ 0 $ 8
16–82 Intermediate Accounting, 8/e
Problem 16–8 (continued)
Journal entry at the end of 2017
Income tax expense (to balance) 74
Requirement 5
Problem 16–8 (continued)
Requirement 6
($ in millions)
Current Future Future
Year Taxable Deductible
2017 Amounts Amounts
[2018] [2018]
Pretax accounting income 183
Permanent difference:
0 (20)
Enacted tax rate 40% 35% 35%
Deferred Tax Asset
Deferred Tax Liability
14
12
0
16–84 Intermediate Accounting, 8/e
Problem 16–8 (concluded)
Journal entry at the end of 2017
Income tax expense (to balance) 75
Problem 16–9
Requirement 1
($ in millions)
Future Future
Temporary Differences Taxable Deductible
Amounts Amounts
Net accounts receivable $ (2)
Prepaid insurance $ 20
Requirement 2
Deferred Tax Asset
Deferred Tax Liability
250
40
44
Requirement 3
Taxable income times tax rate equals income tax payable
16–86 Intermediate Accounting, 8/e
Problem 16–9 (concluded)
Requirement 4
Income tax expense (to balance) 58
Deferred tax asset (determined above) 6
Requirement 5
($ in millions)
Future Deferred
Classification Taxable Tax (Asset)
Related Balance current-C (Deductible) Tax Liability
Sheet Account noncurrent-NC Amounts Rate C NC
Net accounts receivable C (2) x 40% (0.8)
Current Liabilities:
Deferred taxes $ 4
1 If management intends to hold the investments for less than a year, these would be current rather than noncurrent.
Problem 16–10
Requirement 1
($ in millions)
Current Future
Prior Years Year Deductible
2014 2015 2016 Amounts
[total]
Accounting loss (135)
Permanent difference:
Deferred Tax Asset:
Journal entry at the end of 2016
16–88 Intermediate Accounting, 8/e
Problem 16–10 (concluded)
Requirement 2
($ in millions)
Operating loss before income taxes $(135)
Income tax benefit:
Requirement 3
($ in millions)
Current Future
Year Deductible
2017 Amounts
Pretax accounting income 60
Deferred Tax Asset:
Problem 16–11
Requirement 1
Deferred tax assets and deferred tax liabilities are not reported individually,
Problem 16–11 (continued)
Requirement 2
Deferred tax assets are recognized for all deductible temporary differences and
operating loss carryforwards. Deferred tax assets are then reduced by a valuation
16–2 Intermediate Accounting, 8e
Problem 16–11 (concluded)
Requirement 3
The valuation allowance does not preclude Delta from future use of its net
operating loss carryforwards and deferred tax assets. Since Delta has been able to
return to profitability, the company considered it more likely than not that there will
be sufficient taxable income to absorb the future deductible amounts, and reversed the
valuation allowance as follows:
Requirement 4
Delta reduced its valuation allowance from $10,963 million to $177 million, for a
total reduction of $10,786 million, which represents a decrease of 98.4 percent. That
Problem 16–12
CPS TRANSPORTATION
Income Tax Expense and Net Income
For the Year Ended December 31, 2016
Requirement 1
Income before income taxes $900,000
Calculation:
Deferred income tax expense
Reversal of temporary differences from depreciation
giving rise to future taxable amounts:
Less:
Dec. 31, 2015, deferred tax liability:
Temporary difference—Depreciation
Problem 16–12 (continued)
Requirement 2
CPS TRANSPORTATION
Calculation of Interest Expense
For the Year Ended December 31, 2016
Capital lease obligation
Bonds payable
Calculation of bond price:
Problem 16–12 (concluded)
Requirement 3
CPS TRANSPORTATION
Long-Term Liabilities Section of Balance Sheet
December 31, 2016
Long-term liabilities:
Lease liability—14 payments of $10,000
16–6 Intermediate Accounting, 8e
Problem 16–13
Requirement 1
Requirement 2
In the financial statements, none of the tax benefit is recognized because it is not
Requirement 3
The tax benefit from the tax treatment of the plot sales is the ability to defer
paying the tax. Tru is reducing taxable income by the entire $60 million,
Amount Qualifying Percentage Likelihood Cumulative Likelihood
for Installment of Tax Treatment of Tax Treatment
Sales Treatment Being Sustained Being Sustained
$60 20% 20%
Problem 16–13 (continued)
Requirement 4
($ in millions)
Current Future Future
Year Taxable Taxable
2016 Amounts Amounts
2017 2018 [total]
Accounting income 90
Nontemporary difference:
Journal entry
Problem 16–13 (concluded)
Requirement 5
($ in millions)
Income tax expense (to balance) 36
Now consider what happens later, when uncertainty about the tax position is resolved.
Interest income (permanent difference):
What if it is completely disallowed? (worst case)
Installment income (temporary difference):
What if it is completely disallowed? (worst case)
What if it is completely upheld? (best case)