EXERCISE 19-8 (10–15 minutes)
(a) 2014
Income Tax Expense ………………………………………. 336,000
Deferred Tax Asset ($20,000 X 40%) ………………… 8,000
Deferred Tax Liability ($30,000 X 40%) ……… 12,000
(b)
Current assets
Deferred tax asset ($8,000 + $4,000 + $3,200) $15,200
(c)
Pretax financial income $945,000
Income tax expense
Current $377,200
EXERCISE 19-9 (15–20 minutes)
2011
Income Tax Expense ……………………………………………….. 32,000
Income Taxes Payable ($80,000 X 40%) ……………… 32,000
Deferred Tax Asset ………………………………………………….. 120,000
Benefit Due to Loss Carryforward
(Income Tax Expense) …………………………………… 120,000
[40% X ($380,000 – $80,000)]
2014
EXERCISE 19-10 (20–25 minutes)
(a) Income Tax Refund Receivable ………………………….. 29,950
[($17,000 X 35%) + ($48,000 X 50%)]
Benefit Due to Loss Carryback ……………………. 29,950
(c) Income Tax Expense …………………………………………. 36,000
Deferred Tax Asset …………………………..………… 34,000
Income Taxes Payable ………………………………… 2,000
[40% X ($90,000 – $85,000)]
(d) Income before income taxes $90,000
Income tax expense
Current $ 2,000
Deferred 34,000 36,000
Net income $54,000
EXERCISE 19-11 (10–15 minutes)
Resulting
Deferred Tax
Related Balance Sheet
Temporary Difference
(Asset)
Liability
Account
Classification
Depreciation
$200,000
Plant Assets
Noncurrent
*$120,000 X 40% = $48,000 **$225,000 – $48,000 = $177,000
Current assets
Deferred tax asset ($50,000 – $48,000) $ 2,000
EXERCISE 19-12 (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
EXERCISE 19-12 (Continued)
Cumulative temporary difference at 12/31/14
which will result in future deductible amounts $95,000
Cumulative temporary difference at 1/1/14
which will result in future deductible amounts 50,000
Originating difference in 2014 which will
result in future deductible amounts $45,000
(b) Income Tax Expense …………………………………………. 56,000
Deferred Tax Asset ……………………………………………. 18,000
Temporary
Difference
Future Taxable
(Deductible) Amounts
Deferred Tax
(Asset)
Liability
First one
($230,000
$92,000
Second one
Totals
$92,000*
EXERCISE 19-12 (Continued)
Deferred tax asset at the end of 2014 $(38,000
Deferred tax asset at the beginning of 2014 20,000
(c) Income before income taxes $140,000
Income tax expense
Current $42,000
EXERCISE 19-13 (20–25 minutes)
(a) Income Tax Expense …………………………..…………. 178,500
Income Taxes Payable …………………………….. 128,000
Future Years
2014
2015
2016
2017
Total
Enacted tax rate
Future taxable (deductible)
EXERCISE 19-13 (Continued)
(b) Income Tax Expense ………………………………………. 156,500
Income Taxes Payable ……………………………… 128,000
Deferred Tax Liability ……………………………….. 28,500
EXERCISE 19-14 (20–25 minutes)
(a) Income Tax Expense ………………………………………. 298,000
Deferred Tax Asset …………………………………………. 30,000
Income Taxes Payable ……………………………… 328,000
EXERCISE 19-14 (Continued)
Deferred tax asset at the end of 2014 $180,000
Deferred tax asset at the beginning of 2014 150,000
(b) The journal entry at the end of 2014 to establish a valuation account:
Income Tax Expense …………………………..………….. 30,000
Allowance to Reduce Deferred Tax Asset
to Expected Realizable Value ………………… 30,000
Note to instructor: Although not requested by the instructions, the
pretax financial income can be computed by completing the following
reconciliation:
EXERCISE 19-15 (20–25 minutes)
(a) Income Tax Expense …………………………..…………. 298,000
Deferred Tax Asset ………………………………………… 30,000
EXERCISE 19-15 (Continued)
Date
Cumulative Future Taxable
(Deductible) Amounts
Tax Rate
Deferred Tax
(Asset)
Liability
12/31/14
$(450,000)
40%
$(180,000)
Deferred tax asset at the end of 2014 $180,000
(b) Income Tax Expense ………………………………………. 298,000
Deferred Tax Asset …………………………………………. 30,000
Income Taxes Payable ……………………………… 328,000
Date
Cumulative Future Taxable
(Deductible) Amounts
Tax Rate
Deferred Tax
(Asset)
Liability
12/31/14
$(450,000)
40%
$(180,000)
Deferred tax asset at the end of 2014 $180,000
EXERCISE 19-15 (Continued)
Valuation account needed at the end of 2014 $180,000
Note to instructor: Although not requested by the instructions, the
pretax financial income can be computed by completing the following
reconciliation:
EXERCISE 19-16 (15–20 minutes)
(a)
Future Years
2014
2015
Total
Future taxable (deductible)
amounts
$1,500,000
$1,500,000
$3,000,000
*The prior tax rate of 40% is computed by dividing the $1,200,000
balance of the deferred tax liability account at January 1, 2013, by the
$3,000,000 cumulative temporary difference at that same date.
Resulting Deferred Tax
Related Balance Sheet
Account
Classification
(Asset)
Liability
EXERCISE 19-16 (Continued)
* One-half of the installment receivable is classified as a current asset
(b) Deferred Tax Liability ………………………………………… 90,000
Income Tax Expense …………………………………… 90,000
There are no changes during 2013 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
EXERCISE 19-17 (30–35 minutes)
Journal entry at December 31, 2013:
Income Tax Expense …………………………..……………. 67,900
Deferred Tax Asset …………………………………………… 4,500
The deferred tax account balances at December 31, 2013, are determined
as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Rate
Deferred Tax
(Asset)
Liability
Installment sales
($16,000
45%
$7,200
Warranty costs
45%
*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 2013 $7,200
EXERCISE 19-17 (Continued)
Journal entry at December 31, 2014:
Income Tax Expense ………………………………………… 94,500
The deferred tax account balances at December 31, 2014, are determined
as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Deferred Tax
(Asset)
Liability
Installment sales
($8,000
$3,600
Warranty costs
( (5,000)
Totals
$3,600*
*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 2014 $(3,600
EXERCISE 19-17 (Continued)
Journal entry at December 31, 2015:
Income Tax Expense …………………………..……………. 40,500
Deferred Tax Liability ……………………………………….. 3,600
Deferred tax asset at the end of 2015 $ 0
Deferred tax asset at the beginning of 2015 2,250
Deferred tax expense for 2015 (decrease
required in deferred tax asset) $2,250
EXERCISE 19-18 (20–25 minutes)
(a)
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
December 31, 2014
Deferred Tax
(Asset)
Liability
Installment sales
($ 96,000)
40%
$38,400
Depreciation
40%
Unearned rent
40%
Totals
($ 26,000)
$50,400*
EXERCISE 19-18 (Continued)
(b) Pretax financial income for 2014 $250,000
(c) Income Tax Expense ………………………………………. 111,200
Deferred Tax Asset …………………………………………. 40,000
Income Taxes Payable ……………………………… 100,800
Deferred Tax Liability ……………………………….. 50,400
Deferred tax asset at the end of 2014 $ 40,000
Deferred tax asset at the beginning of 2014 –0–
Deferred tax benefit for 2014 (net increase
required in deferred tax asset) $(40,000)
EXERCISE 19-19 (25–30 minutes)
(a) (All figures are in millions.)
Temporary
Difference
Rate
Resulting
Deferred Tax
Related Balance
Sheet Account
Classification
(Asset)
Liability
$50 million excess
$100 million estimated
(b) Current assets
Deferred tax asset $40,000,000
Long-term liabilities
Deferred tax liability $20,000,000
Cumulative taxable temporary difference
at the end of 2014 $50,000,000
Cumulative taxable temporary difference
at the beginning of 2014 25,000,000
Taxable temporary difference originating
during 2014 $25,000,000
EXERCISE 19-19 (Continued)
Pretax financial income for 2014 $ X
Taxable temporary difference originating (25,000,000)
Deductible temporary difference originating 100,000,000
Taxable income for 2014 $160,000,000
Deferred tax asset at the end of 2014 $(40,000,000
Deferred tax asset at the beginning of 2014 –0–
Deferred tax benefit for 2014 (increase in
EXERCISE 19-20 (15–20 minutes)
(a) Income Tax Expense ………………………………………. 128,800
Deferred Tax Asset …………………………………………. 68,000
Income Taxes Payable ……………………………… 176,800
EXERCISE 19-20 (Continued)
Taxable income for 2013 $520,000
Tax rate 34%
Income taxes payable for 2013 $176,800
Deferred tax liability at the end of 2013 $ 20,000
Deferred tax liability at the beginning of 2013 –0–
Deferred tax expense for 2013 (increase
required in deferred tax liability account) $ 20,000
(b) Current assets
Deferred tax asset $68,000
EXERCISE 19-21 (20–25 minutes)
(a) Income Tax Expense ………………………………………. 242,880
Deferred Tax Asset …………………………………………. 12,920
Taxable income $500,000
Enacted tax rate 34%
Income taxes payable $170,000
Temporary
Difference
Future Taxable
(Deductible)
Amounts
Tax
Rate
Deferred Tax
Classification
(Asset)
Liability
Installment sale
*$ 40,000*
34%1
$13,600
Current
Deferred tax liability at the end of 2013 $85,800
Deferred tax liability at the beginning of 2013 –0–
Deferred tax expense for 2013 (increase
required in deferred tax liability) $85,800
(b) Other assets (noncurrent)
Deferred tax asset $12,920
EXERCISE 19-21 (Continued)
The deferred tax asset is noncurrent because the related liability is
noncurrent. The liability from the accrual of the loss contingency is
noncurrent because it is expected to be settled in years later than the
year immediately following the balance sheet date.
EXERCISE 19-22 (15–20 minutes)
(a) Income Tax Expense …………………………..…………. 125,800
Taxable income $350,000
Enacted tax rate 34%
Income taxes payable $119,000
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability