E19-14 (continued)
2. LESTER CORPORATION
Statement of Retained Earnings
For Year Ended December 31, 2010
Retained earnings, January 1, 2010 $191,000
E19-15
Current Liabilities
Deferred tax liability (net) $ 500a
E19-16
1. $6,120 ÷ 0.30 = $20,400 future taxable amount at end of 2010
2. 2011
E19-17
(1) $150,000 (largest dollar amount above the 50% threshold)
SOLUTIONS TO PROBLEMS
P19-1
P
1.
T(D)
5.
T(T)
9.
P19-2
P19-3
1. 2010
Dec. 31 Income Tax Expense
($885 + $45 – $30) 900
Note to Instructor: A valuation allowance is not needed because the company
has positive verifiable evidence of future taxable income and an existing future
taxable amount (deferred tax liability) in excess of the future deductible
amount (deferred tax asset).
2. Pretax income $3,000
19-23
P19-3 (continued)
P19-4
1. 2010
Dec. 31 Income Tax Expense 117,870f
Deferred Tax Asset (#3) 6,000d
Deferred Tax Liability (#2) 12,000c
2. KLERK COMPANY
Income Statement
For Year Ended December 31, 2010
Revenues $750,000
P19-4 (continued)
P19-5
1. Pretax financial income $66,000
Add: Excess of depreciation for financial reporting over
depreciation for income taxes ($48,000 – $40,000) 8,000
Nondeductible officers’ life insurance premium expense
2. 2010
Dec. 31 Income Tax Expense 13,800e
Deferred Tax Liability (depreciation) 2,400b
19-25
P19-5 (continued)
3. The permanent differences are the nondeductible officers’ life insurance
premium expense, nontaxable interest on municipal bonds, and percentage
P19-6
1. Pretax financial income $69,500
Add: Excess of depreciation for financial reporting
over depreciation for income taxes 11,000
2. 2010
Dec. 31 Income Tax Expense 19,460e
Deferred Tax Liability (depreciation) 3,300b
3. QUICK COMPANY
Income Statement
For Year Ended December 31, 2010
Revenues $229,600
19-26
P19-7
1.
MACRSa –
Straight
Line =
Annual
Temporary
Difference
Accumulated
Temporary
Difference
2010
2011
$ 20,000
32,000
($100,000 x 0.20)
($100,000 x 0.32)
$ 12,500b
12,500
$ 7,500
19,500
$ 7,500
27,000
2. Accumulated
Temporary
Difference x
Income
Tax
Rate
Ending
Deferred Tax
= Liability –
Beginning
Deferred Tax
Liability =
Change in
Deferred Tax
Liability
2010
$ 7,500
0.30
$ 2,250
$ 0
$ 2,250
3. 2010
Dec. 31 Income Tax Expense ($13,200 + $2,250) 15,450
19-27
1.
MACRSa –
Straight
Line =
Annual
Temporary
Difference
Accumulated
Temporary
Difference
(a) 2010 (b) 2011
2. Dec. 31 Income Tax Expense 7,499 11,601
Deferred Tax Liability 1,499a 3,501c
Income Taxes Payable 6,000b 8,100d
3. 2010 2011 2012 2013
P19-9
1. 2010
Dec. 31 Income Tax Expense 17,660d
Deferred Tax Asset 5,425c
Income Taxes Payable 17,310a
2. Income before income taxes $60,000
P19-10
1. 2010
Dec. 31 Income Tax Refund Receivable 33,150
Income Tax Benefit From
Operating Loss Carryback 33,150a
P19-10 (continued)
1. (continued)
2010
Dec. 31 Deferred Tax Asset ($15,000 x 0.30) 4,500
Tax Asset to Realizable Value 4,500
2. ROSS COMPANY
Income Statement
For Year Ended December 31, 2010
Revenues $ 60,000
Less: Expenses (193,000)
income taxes.
3. 2011
June 1 Cash 33,150
Income Tax Refund Receivable 33,150
4. 2011
Dec. 31 Income Tax Expense 3,300
19-30
P19-10 (continued)
5. ROSS COMPANY
Income Statement
For Year Ended December 31, 2011
Revenues $181,000
P19-11
1. 2010
Dec. 31 Income Tax Refund Receivable 33,150
Income Tax Benefit From
Operating Loss Carryback 33,150a
Taxable Tax
Revenues – Expenses = Income x Rate = Refund
19-31
P19-11 (continued)
2. ROSS COMPANY
Income Statement
For Year Ended December 31, 2010
Revenues $ 60,000
Less: Expenses (193,000)
Pretax operating loss $(133,000)
3. 2011
June 1 Cash 33,150
Income Tax Refund Receivable 33,150
4. 2011
Dec. 31 Income Tax Expense 7,800
P19-11 (continued)
5. ROSS COMPANY
Income Statement
For Year Ended December 31, 2011
Revenues $181,000
P19-12
2. 2010
Apr. 30 Income Tax Expense 1,600e
Deferred Tax Asset (#1) 2,800a
P19-12 (continued)
3. 2010
Dec. 31 Income Tax Expense 25,800f
Deferred Tax Asset (#2) 1,400c
4. Current Assets Current Liabilities
Deferred tax asset (net) $3,700a Income taxes payable $25,000
P19-13
1. COLT COMPANY
Schedule of Income Tax Expense
For Year Ended December 31, 2010
Income Income Tax
Pretax x Tax = Expense
Component (Pretax) Amount Rate (Credit)
$50,000 0.15 $ 7,500
Income from continuing operationsa 65,000 0.30 19,500
2. 2010
Dec. 31 Income Tax Expense 27,000a
Income from Operations of
{
P19-13 (continued)
2. (continued)
a$27,000 = $7,500 + $19,500 (from Requirement 1)
3. COLT COMPANY
Income Statement
For Year Ended December 31, 2010
Revenues $295,000
4. COLT COMPANY
Statement of Retained Earnings
For Year Ended December 31, 2010
Retained earnings, January 1, 2010 $310,000