EXERCISE 19.9 (10–15 minutes)
Resulting
Deferred Tax
Temporary Difference
(Asset)
Liability
Excess Depreciation
$200,000
EXERCISE 19.10 (20–25 minutes)
(a) To complete a reconciliation of pretax financial income and taxable
income, solving for the amount of pretax financial income, we must
first determine the amount of temporary differences arising or
reversing during the year. To accomplish that, we must determine the
amount of cumulative temporary differences underlying the beginning
EXERCISE 19.10 (Continued)
Cumulative temporary difference at 12/31/20
which will result in future deductible amounts $95,000
Cumulative temporary difference at 1/1/20
which will result in future deductible amounts 50,000
Originating difference in 2020 which will
(b) Income Tax Expense ………………………………………… 28,000
Deferred Tax Asset …………………………………………… 9,000
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
First one
($230,000
20%
$46,000
EXERCISE 19.10 (Continued)
Deferred tax asset at the end of 2020 $(19,000
Deferred tax asset at the beginning of 2020 10,000
(c) Income before income taxes $140,000
Income tax expense
Current $21,000
Deferred 7,000 28,000
Net income $ 112,000
(d) Because of the same tax rate for all years involved and no permanent
EXERCISE 19.11 (20–25 minutes)
(a) Income Tax Expense ………………………………………. 178,500
Income Taxes Payable ……………………………… 128,000
Deferred Tax Liability ……………………………….. 50,500
EXERCISE 19.11 (Continued)
Deferred tax liability at the end of 2019 $ 50,500
(b) Income Tax Expense ……………………………………… 156,500
Income Taxes Payable …………………………….. 128,000
Deferred Tax Liability ………………………………. 28,500
The income taxes payable for 2019 of $128,000 and the $50,500
balance for Deferred Tax Liability at December 31, 2019, would be
EXERCISE 19.12 (20–25 minutes)
(a) Income Tax Expense ……………………………………… 149,000
Deferred Tax Asset ………………………………………… 15,000
Income Taxes Payable …………………………….. 164,000
Date
Cumulative Future Taxable
(Deductible) Amounts
Tax Rate
Deferred Tax
(Asset)
Liability
12/31/20
$(450,000)
20%
$(90,000)
EXERCISE 19.12 (Continued)
(b) The journal entry at the end of 2020 to establish a valuation account:
Income Tax Expense ………………………………………. 15,000
Allowance to Reduce Deferred Tax Asset
to Expected Realizable Value ………………… 15,000
Note to instructor: Although not requested by the instructions, the
pretax financial income can be computed by completing the following
reconciliation:
EXERCISE 19.13 (20–25 minutes)
(a) Income Tax Expense ………………………………………. 149,000
Deferred Tax Asset …………………………………………. 15,000
Income Taxes Payable ……………………………… 164,000
EXERCISE 19.13 (Continued)
Date
Cumulative Future Taxable
(Deductible) Amounts
Tax Rate
Deferred Tax
(Asset)
Liability
12/31/20
$(450,000)
20%
$(90,000)
Deferred tax asset at the end of 2020 $ 90,000
(b) Income Tax Expense ……………………………………… 149,000
Date
Cumulative Future Taxable
(Deductible) Amounts
Tax Rate
Deferred Tax
(Asset)
Liability
12/31/20
$(450,000)
20%
$(90,000)
Deferred tax asset at the end of 2020 $ 90,000
EXERCISE 19.13 (Continued)
Valuation account needed at the end of 2020 $90,000
Valuation account balance at the beginning of 2020 22,500
Increase in valuation account during 2020 $67,500
Note to instructor: Although not requested by the instructions, the
EXERCISE 19.14 (15–20 minutes)
(a)
Future Years
2020
2021
Total
Future taxable (deductible)
amounts
$1,500,000
$1,500,000
$3,000,000
EXERCISE 19.14 (Continued)
(b) Deferred Tax Liability ……………………………………….. 300,000
Income Tax Expense ………………………………….. 300,000
There are no changes during 2019 in the cumulative temporary
difference. The entire change in the deferred tax liability account is due
(c) Income before income taxes $ 5,000,000*
Income tax expense
Current $2,000,000**
Adjustment due to change
in tax rate (300,000) 1,700,000
EXERCISE 19.15 (30–35 minutes)
Journal entry at December 31, 2019:
Income Tax Expense …………………………………………. 67,900
The deferred tax account balances at December 31, 2019, are determined
as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Rate
Deferred Tax
(Asset)
Liability
*Because all deferred taxes were computed at the same rate, these totals
can be reconciled as follows: $6,000 X .45 = $(4,500) + $7,200.
Deferred tax liability at the end of 2019 $7,200
Deferred tax liability at the beginning of 2019 –0–
EXERCISE 19.15 (Continued)
Journal entry at December 31, 2020:
Income Tax Expense ………………………………………… 94,500
Deferred Tax Liability ……………………………………….. 3,600
The deferred tax account balances at December 31, 2020, are determined
as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Rate
Deferred Tax
(Asset)
Liability
*Because all deferred taxes were computed at the same rate, these totals
can be reconciled as follows: $3,000 X .45 = $(2,250) + $3,600.
Deferred tax liability at the end of 2020 $(3,600
Deferred tax liability at the beginning of 2020 7,200
EXERCISE 19.15 (Continued)
Journal entry at December 31, 2021:
Income Tax Expense ………………………………………… 40,500
Deferred tax liability at the end of 2021 $( 0
Deferred tax liability at the beginning of 2021 3,600
Deferred tax benefit for 2021 (decrease
required in deferred tax liability) $(3,600)
EXERCISE 19.16 (20–25 minutes)
(a)
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
December 31, 2020
Deferred Tax
(Asset)
Liability
Installment sales
($ 96,000)
20%
$19,200
Depreciation
20%
Unearned rent
( (100,000)
20%
Totals
($ 26,000)
$25,200*
EXERCISE 19.16 (Continued)
(b) Pretax financial income for 2020 $250,000
(c) Income Tax Expense ……………………………………… 106,000
Deferred Tax Asset ………………………………………… 20,000
Income Taxes Payable …………………………….. 100,800
Deferred Tax Liability ………………………………. 25,200
Deferred tax expense for 2020 $ 25,200
Deferred tax benefit for 2020 (20,000)
Net deferred tax expense for 2020 5,200
EXERCISE 19.17 (25–30 minutes)
(a) Temporary Difference
Rate
Resulting Deferred Tax
In millions
(Asset)
Liability
(b) Non-Current assets
Deferred tax asset ($20,000,000 − $10,000,000) $10,000,000
(c) Income before income taxes $85,000,0002
Income tax expense
Current $32,000,0001
Cumulative taxable temporary difference
at the end of 2020 $50,000,000
Cumulative taxable temporary difference
at the beginning of 2020 25,000,000
Taxable temporary difference originating
EXERCISE 19.17 (Continued)
Pretax financial income for 2020 $ X
Solving for X:
X – $25,000,000 + $100,000,000 = $160,000,000
X = $85,000,000 = Pretax financial income
3Deferred tax liability at the end of 2020 $10,000,000
Deferred tax liability at the beginning of 2020 5,000,000
Deferred tax expense for 2020 (increase in
deferred tax liability) $ 5,000,000
EXERCISE 19.18 (15–20 minutes)
(a) Income Tax Expense …………………………..…………. 128,800
Deferred Tax Asset ………………………………………… 68,000
Income Taxes Payable …………………………….. 176,800
Deferred Tax Liability ………………………………. 20,000
Future Years
2020
2021
2022
Total
Future taxable (deductible) amounts
Depreciation
Warranty costs
(200,000)
Enacted tax rate
EXERCISE 19.18 (Continued)
Taxable income for 2019 $520,000
Tax rate 34%
Income taxes payable for 2019 $176,800
Deferred tax benefit for 2019 $ (68,000)
Deferred tax expense for 2019 20,000
Net deferred tax benefit for 2019 (48,000)
EXERCISE 19.19 (20–25 minutes)
(a) Income Tax Expense …………………………..…………. 221,600
Taxable income $500,000
Enacted tax rate 34%
Income taxes payable $170,000
Temporary
Difference
Future Taxable
(Deductible)
Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Deferred tax liability at the end of 2019 $51,600
Deferred tax liability at the beginning of 2019 –0–
Deferred tax expense for 2019 (increase
required in deferred tax liability) $51,600
Deferred tax asset at the end of 2019 $ 6,800
(b) Non-Current liabilities
Deferred tax liability ($51,600 − $6,800) $44,800
EXERCISE 19.20 (15–20 minutes)
(a) Income Tax Expense ………………………………………. 125,800
Deferred Tax Asset …………………………………………. 10,200
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Accounts receivable
$50,000
34%
*$17,000
Litigation liability
( (30,000)
34%
$(10,200)
Totals
($20,000
$(10,200)
$17,000
*Because of a flat tax rate for all periods, these totals can be
reconciled as follows: $20,000 X .34 = $(10,200) + $17,000.
EXERCISE 19.20 (Continued)
(b)
Temporary
Difference
Resulting Deferred Tax
(Asset)
Liability
Accounts receivable
Litigation liability
$17,000
EXERCISE 19.21 (15–20 minutes)
2017
Income Tax Expense ……………………………………………….. 16,000
Income Taxes Payable ($80,000 X 20%) ……………… 16,000
EXERCISE 19.21 (Continued)
2021
Income Tax Expense ………………………………………………… 20,000
EXERCISE 19.22 (20–25 minutes)
(a) Deferred Tax Asset ……………………………………………. 30,000
Income Tax Expense (Loss Carryforward) ……. 30,000
($150,000 X .20 = $30,000)
EXERCISE 19.22 (Continued)
(f) Operating loss before income taxes $(60,000)
EXERCISE 19.23 (30–35 minutes)
(a) 2018
Income Tax Expense …………………………..……………. 20,400
Income Taxes Payable ($120,000 X .17) ……….. 20,400
2019
(b) Operating loss before income taxes $(280,000)
Income tax benefit
Deferred 53,200*
Net loss $(226,800)