CHAPTER 19
SOLUTIONS TO B PROBLEMS
PROBLEM 19-1B
(a) X (0.30) = $270,000 taxes due for 2014
X = $270,000 ÷ 0.30
X = $900,000 taxable income for 2014
(c) 2014
Income Tax Expense
($270,000 + $30,000 – $12,000) ………………………. 288,000
2015
Income Tax Expense
($304,000 + $6,000 – $10,000) ………………………… 300,000
Deferred Tax Liability [($75,000 ÷ 3) X 0.40] ……….. 10,000
PROBLEM 19-2B
(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:
2014
2015
2016
2017
Cumulative Temporary
Difference At End of Year
2014
$200,000
2014
Income Tax Expense ……………………………………….. 126,000
Income Taxes Payable ………………………………. 66,000
Deferred Tax Liability ………………………………… 60,000
PROBLEM 19-2B (Continued)
The deferred taxes at the end of 2014 would be computed as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Depreciation
$200,000
30%
$60,000
2015
Income Tax Expense ……………………………………….. 10,000*
Deferred Tax Liability ………………………………… 10,000
(To record the adjustment for the
increase in the enacted tax rate)
*The adjustment due to the change in the tax rate is computed as
follows:
Cumulative temporary difference at the end
PROBLEM 19-2B (Continued)
Taxable income for 2015 ………………………………………………. $200,000
The deferred taxes at December 31, 2015, are computed as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Deferred tax expense for 2015 ………………………………………. $ 21,000
Current tax expense for 2015 (Income taxes payable) …….. 70,000
Income tax expense (total) for 2015, exclusive
of adjustment due to change in tax rate ……………………… $91,000
2016
Income Tax Expense …………………………………. 10,000**
PROBLEM 19-2B (Continued)
**The adjustment due to the change in the tax rate is computed as
follows:
Cumulative temporary difference at the end
of 2015 ……………………………………………………………………. $260,000
The deferred taxes at December 31, 2016, are computed as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Depreciation
$250,000
40%
$100,000
Deferred tax liability at the end of 2016 ………………………….. $100,000
PROBLEM 19-2B (Continued)
2017
Income Tax Expense …………………………………….. 124,000
Deferred Tax Liability ……………………………… 20,000
The deferred taxes at December 31, 2017, are computed as follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Deferred tax expense for 2017 ………………………………………. $ 20,000
Current tax expense for 2017 (Income taxes payable) …….. 104,000
Income tax expense for 2017 …………………………..……………. $124,000
(b) 2015
Income before income taxes …………………………. $320,000
PROBLEM 19-3B
Book Depreciation
Tax Depreciation
Difference
2014
$ 112,500
$ 90,000*
($ 22,500
2015
112,500
180,000
(67,500)
2016
112,500
180,000
2017
112,500
180,000
2019
112,500
2020
112,500
2021
112,500
($ 0
(a) Pretax financial income for 2015 ……………………. $1,700,000
Nontaxable interest ………………………………………. (26,000)
(b) Income Tax Expense …………………………………….. 502,200
PROBLEM 19-3B (Continued)
Scheduling—End of 2015
Future Years
2016
2017
2018
Future taxable (deductible)
amounts
$(67,500)
$(67,500)
$(67,500)
Enacted tax rate
Deferred tax (asset) liability
$(20,250)
$(20,250)
$(20,250)
Future Years
2019
2020
2021
Future taxable (deductible)
amounts
Enacted tax rate
Deferred tax (asset) liability
The net deferred tax liability at December 31, 2015, is $13,500.
Scheduling—End of 2014
Future Years
2015
2016
2017
2018
Future taxable (deductible)
amounts
$(67,500)
$(67,500)
$(67,500)
$(67,500)
Enacted tax rate
Deferred tax (asset) liability
$(20,250)
$(20,250)
$(20,250)
$(20,250
Future Years
2019
2020
2021
Enacted tax rate
Deferred tax (asset) liability
PROBLEM 19-3 (Continued)
The net deferred tax asset at December 31, 2014, is $6,750.
Deferred tax liability at the end of 2015 …………………………... $ 13,500
Deferred tax liability at the beginning of 2015 …………………. 0
Deferred tax expense for 2015 (increase in
deferred tax liability) ………………………………………………….. $ 13,500
Current tax expense for 2015 (Income taxes payable) ……… $481,950
Deferred tax expense for 2015 …………………………..…………… 20,250
Income tax expense for 2015 …………………………………………. $502,200
(c) Income before income taxes and
extraordinary item …………………………………… $1,820,000a
Income tax expense
(d) Long-term liabilities
Deferred tax liability ……………………………………. $13,500
PROBLEM 19-4B
(a) Schedule of Pretax Financial Income
and Taxable Income for 2014
Pretax financial income ………………………………………………. $460,000
Permanent differences
Insurance expense ………………………………………………… 7,000
* Depreciation for books ($450,000/6) = $75,000
Depreciation tax return ($450,000 X 30%) = 135,000
Difference $60,000
PROBLEM 19-4B (Continued)
(b) The journal entry to record income taxes payable, income tax expense
and deferred income taxes is as follows:
Income Tax Expense ……………………………………… 142,200*
Deferred Tax Asset ……………………………………….. 19,800
Deferred Tax Liability ($18,000 + $30,000) ….. 48,000
PROBLEM 19-5B
(a) 2014
Income Tax Refund Receivable
[($10,000 X 30%) + ($45,000 X 40%)] ……………….. 21,000
Benefit Due to Loss Carryback …………………… 21,000
2016
Income Tax Expense ………………………………………… 18,000
Deferred Tax Asset [($85,000 – $30,000) X 30%] 16,500
Income Taxes Payable
[($60,000 – $55,000) X 30%) …………………….. 1,500
(b) The income tax refund receivable account totaling $21,000 will be
reported under current assets on the balance sheet at December 31, 2014.
This type of receivable is usually listed immediately above inventory in