EXERCISE 19.23 (Continued)
(c) 2020
Deferred Tax Asset …………………………………………. 53,200
Income Tax Expense (Loss Carryforward) …. 53,200*
*$280,000 X .19
(d) Operating loss before income taxes $(280,000)
Income tax benefit
Income tax expense (carryforward) ($53,200 – $13,300) 39,900
Net loss $(240,100)
Note: Although not required, using the assumption in part (a), the
EXERCISE 19.23 (Continued)
Note: Although not required, using the assumption in part (c), the
income tax section of the 2021 income statement would appear as
EXERCISE 19.24 (30–35 minutes)
(a) 2018
Income Tax Expense …………………………..…………. 24,000
Income Taxes Payable ($120,000 X .20) ……… 24,000
EXERCISE 19.24 (Continued)
2021
Income Tax Expense ………………………………………. 30,000
Deferred Tax Asset ……………………………………. 30,000*
Note: Income Taxes Payable is zero because the NOL
was carried forward to reduce taxable income to zero.
(b) Operating loss before income taxes $(280,000)
Income tax benefit
* Benefit due to loss carryforward ($70,000 – $35,000)
(c) Income before income taxes for 2021 $120,000
Income tax expense
EXERCISE 19.25 (15–20 minutes)
(a) 2020
Income Tax Expense ($120,000 X .20) …………….. 24,000
Income Taxes Payable ……………………………. 24,000
2021
2022
Income Tax Expense ($30,000 + $6,000) …………. 36,000
Income Taxes Payable ……………………………. 6,000
[($180,000 – $150,000) X .20]
Deferred Tax Asset …………………………………. 30,000
*EXERCISE 19.26 (15–20 minutes)
2019
Income Tax Refund Receivable ………………………………… 16,000
Income Tax Expense (Loss Carryback) …………….. 16,000
($80,000 X .20)
Deferred Tax Asset ………………………………………………….. 60,000
Income Tax Expense (Loss Carryforward) …………. 60,000
[.20 X ($380,000 – $80,000)]
*EXERCISE 19.27 (15–20 minutes)
(a) 2020
Income Tax Expense ($120,000 X .20) …………….. 24,000
Income Taxes Payable ……………………………. 24,000
2021
2022
Income Tax Expense …………………………..………… 36,000
Income Taxes Payable ……………………………. 16,000
[($180,000 – $100,000) X .20]
Deferred Tax Asset …………………………………. 20,000
TIME AND PURPOSE OF PROBLEMS
Problem 19.1 (Time 40–45 minutes)
Purpose—to provide students with an understanding of how to compute both taxable and pretax
Problem 19.2 (Time 50–60 minutes)
Purpose—to provide the student with a situation where: (1) a temporary difference originates over a
three-year period and begins to reverse in the fourth period, (2) a change in an enacted tax rate occurs
Problem 19.3 (Time 40–45 minutes)
Purpose—to provide the student with an understanding of how future temporary differences for existing
depreciable assets are considered in determining the future years in which existing temporary
Problem 19.4 (Time 20–25 minutes)
Purpose—to provide the student with an understanding of permanent and temporary differences when
Problem 19.5 (Time 20–25 minutes)
Purpose—to provide the student with a situation involving a net operating loss which requires analysis
Problem 19.6 (Time 20–25 minutes)
Purpose—to provide the student with an understanding of how the computation and classification of
deferred income taxes are affected by the individual future year(s) in which future taxable and
Problem 19.7 (Time 45–50 minutes)
Purpose—to provide the student with a situation where: (1) a temporary difference originates in one
Time and Purpose of Problems (Continued)
Problem 19.8 (Time 40–50 minutes)
Purpose—to test a student’s understanding of the relationships that exist in the subject area of
Problem 19.9 (Time 40–50 minutes)
Purpose—to test a student’s ability to compute and classify deferred taxes for three temporary
SOLUTIONS TO PROBLEMS
PROBLEM 19.1
(a) X(.20) = $160,000 taxes due for 2020
X = $160,000 ÷ .20
X = $800,000 taxable income for 2020
(b) Taxable income [from part (a)]………………………….. $800,000a
(c) 2020
Income Tax Expense
($160,000 + $20,400 – $6,800) ………………………… 173,600
Deferred Tax Asset ($40,000 X .17) ……………………. 6,800
(d) Income before income taxes …………………………….. $890,000
Income tax expense
Current …………………………………………………….. $160,000
PROBLEM 19.2
(a) Before deferred taxes can be computed, the amount of temporary
difference originating (reversing) each period and the resulting cumula–
tive temporary difference at each year-end must be computed:
2020
2021
2022
2023
Pretax financial income
$290,000
$320,000
$350,000
($(420,000
Cumulative Temporary
Difference At End of Year
2020
$140,000
2021
$265,000
($140,000 + $125,000)
2022
$385,000
($265,000 + $120,000)
Because the temporary difference causes pretax financial income to
exceed taxable income in the period it originates, the temporary
difference will cause future taxable amounts.
2020
Income Tax Expense …………………………..…………… 112,000
PROBLEM 19.2 (Continued)
The deferred taxes at the end of 2020 would be computed as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Depreciation
$140,000
35%
$49,000
Deferred tax liability at the end of 2020 …………………………. $ 49,000
2021
Deferred Tax Liability ………………………………………. 21,000*
Income Tax Expense …………………………………. 21,000
(To record the adjustment for the
decrease in the enacted tax rate)
PROBLEM 19.2 (Continued)
Taxable income for 2021 ………………………………………………. $225,000
The deferred taxes at December 31, 2021, are computed as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Depreciation
$265,000
20%
$53,000
Deferred tax liability at the end of 2021 ………………………….. $53,000
2022
Income Tax Expense …………………………..…………. 76,000
Income Taxes Payable …………………………….. 52,000
Deferred Tax Liability ………………………………. 24,000
The deferred taxes at December 31, 2022, are computed as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Depreciation
PROBLEM 19.2 (Continued)
Deferred tax liability at the end of 2022 ………………………….. $77,000
2023
Income Tax Expense …………………………………….. 90,000
Deferred Tax Liability ……………………………………. 22,000
Income Taxes Payable ……………………………. 112,000
The deferred taxes at December 31, 2023, are computed as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Depreciation
$275,000
20%
$55,000
Deferred tax liability at the end of 2023………………………….. $55,000
(b) 2021
Income before income taxes …………………………. $320,000
Income tax expense
PROBLEM 19.3
Book Depreciation
Tax Depreciation
Difference
2020
$ 150,000**
$ 120,000*
($ 30,000
2021
150,000
240,000
(90,000)
2022
150,000
240,000
(90,000)
2023
150,000
240,000
(90,000)
2024
150,000
240,000
2025
150,000
120,000*
2026
150,000
2027
(a) Pretax financial income for 2021 ……………………. $1,400,000
Nontaxable interest ……………………………………….. (60,000)
(b) Income Tax Expense …………………………..………… 268,000
Income Taxes Payable ……………………………. 250,000
PROBLEM 19.3 (Continued)
Scheduling—End of 2021
Future Years
2022
2023
2024
Future taxable (deductible)
amounts
$(90,000)
$(90,000)
$(90,000)
Enacted tax rate
Deferred tax (asset) liability
Future Years
Future taxable (deductible)
amounts
Enacted tax rate
X 20%
Deferred tax (asset) liability
Scheduling—End of 2020
Future Years
2021
2022
2023
2024
Future taxable (deductible)
amounts
$(90,000)
$(90,000)
$(90,000)
$(90,000)
Enacted tax rate
Deferred tax (asset) liability
Future Years
2025
Enacted tax rate
Deferred tax (asset) liability
PROBLEM 19.3 (Continued)
The net deferred tax asset at December 31, 2020, is $6,000.
Deferred tax liability at the end of 2021 …………………………... $ 12,000
Deferred tax liability at the beginning of 2021 …………………. –0–
Deferred tax expense for 2021 (increase in
Current tax expense for 2021 (Income taxes payable) ……… $250,000
Deferred tax expense for 2021 ……………………………………….. 18,000
Income tax expense for 2021 …………………………..…………….. $268,000
(c) Income from continuing operations
before income taxes ………………………………… $1,200,000a
Income tax expense
(d) Long-term liabilities
Deferred tax liability …………………………………….. $12,000
PROBLEM 19.4
(a) Schedule of Pretax Financial Income
and Taxable Income for 2020
Pretax financial income ………………………………………………. $750,000
Permanent differences
Life insurance expense ………………………………………….. 9,000
The income taxes payable for 2020 is as follows:
Taxable income ………………………………… $744,200
Tax rate ……………………………………………. 30%
Income taxes payable ……………………….. $223,260
The computation of the deferred income taxes for 2020 is as follows:
PROBLEM 19.4 (Continued)
(b) The journal entry to record income taxes payable, income tax expense
and deferred income taxes is as follows:
Income Tax Expense ……………………………………… 227,760*
PROBLEM 19.5
(a) 2020
Deferred Tax Asset ……………………………………………. 36,000
Income Tax Expense (Loss Carryforward)
($180,000 X 20%) …………………………………….. 36,000
(b) A deferred tax asset of $36,000 should be classified as a non-current
PROBLEM 19.5 (Continued)
(c) 2020 Income Statement
Operating loss before income taxes …………… $(180,000)
(d) 2021 Income Statement
Income before income taxes ………………………. $200,000
Income tax expense