E19-16B (Continued)
(c) Income before income taxes …………………. $7,250,000*
Income tax expense
Current …………………………………………. $2,900,000**
Adjustment due to change
E19-17B (30–35 minutes)
Journal entry at December 31, 2014:
Income Tax Expense ………………………………………… 28,000
Deferred Tax Asset …………………………………………… 21,000
Income Tax Payable …………………………………… 39,000
E19-17B (Continued)
The deferred tax account balances at December 31, 2014, are determined as
follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Rate
Deferred Tax
(Asset)
Liability
Depreciation
($25,000
40%
$10,000
Warranty costs
( (50,000)
30%
$(15,000)
Warranty costs
40%
Totals
$10,000
Deferred tax asset at the end of 2014 …………………………….. $(21,000)
Deferred tax asset at the beginning of 2014 ……………………. 0
Deferred tax expense (benefit) for 2014 (net
increase required in deferred tax asset) ……………………… $(21,000)
Journal entry at December 31, 2015:
Income Tax Expense ………………………………………… 169,000
Deferred Tax Liability ………………………………… 40,000
E19-17B (Continued)
The deferred tax account balances at December 31, 2015, are determined as
follows:
Temporary
Difference
Future Taxable
(Deductible) Amounts
Rate
Deferred Tax
(Asset)
Liability
Depreciation
($125,000
40%
$50,000
Warranty costs
40%
$(6,000)
Deferred tax liability at the end of 2015 ……………………….. $ 50,000
Deferred tax liability at the beginning of 2015 ……………… 10,000
Deferred tax expense for 2015 (increase
required in deferred tax liability) ……………………………… $ 40,000
E19-17B (Continued)
Journal entry at December 31, 2016:
Income Tax Expense ………………………………………… 60,000
Deferred Tax Liability ………………………………… 30,000
Income Tax Payable ………………………………….. 24,000
Deferred Tax Asset ……………………………………. 6,000
Deferred tax asset at the end of 2016 …………………………….. $ 0
Deferred tax asset at the beginning of 2016 ……………………. (6,000)
Deferred tax expense for 2016 (decrease
required in deferred tax asset) …………………………………… $ 6,000
E19-18B (20–25 minutes)
(a)
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
$(20,000)
40%
$ (8,000)
(25,500)
40%
E19-18B (Continued)
(b) Pretax financial income for 2014 ………………………………… $231,000
Excess installment profit per books ……………………………. (135,000)
(c) Income Tax Expense ……………………………………… 88,600
Deferred Tax Asset ………………………………………… 33,500
Income Tax Payable ………………………………… 69,200
Deferred Tax Liability …………………………..….. 52,900
Deferred tax expense for 2014 …………………………………….. $ 52,900
Deferred tax benefit for 2014 ……………………………………….. (33,500)
Net deferred tax expense for 2014 ……………………………….. 19,400
Current tax expense for 2014 (Income tax payable) ………. 69,200
Income tax expense for 2014 ………………………………………. $ 88,600
E19-19B (25–30 minutes)
(a) (All figures are in millions.)
Temporary
Difference
Rate
Resulting
Deferred Tax
Related Balance
Sheet Account
Classification
(Asset)
Liability
$10 is current,
$200 million estimated
(b) Current assets
Deferred tax asset……………………………………….. $80,000,000
(c) Income before income taxes …………. $126,000,0002
Income tax expense
Current …………………………………. $140,400,0001
Deferred ………………………………… (90,000,000)3 50,400,0004
Net income …………………………………… $ 75,600,000
E19-19B (Continued)
2$60,000,000 ÷ 40% = $150,000,000 cumulative taxable temporary
difference at the beginning of 2014.
Cumulative taxable temporary difference
at the end of 2014 …………………………………………………. $125,000,000
Pretax financial income for 2014 ………………………………. $ X
Taxable temporary difference reversing ……………………. 25,000,000
Deductible temporary difference originating ……………… 200,000,000
Taxable income for 2014 ………………………………………….. $351,000,000
Solving for X:
Deferred tax asset at the end of 2014 ………………………… $(80,000,000)
Deferred tax asset at the beginning of 2014 ………………. 0
Deferred tax benefit for 2014 (increase in
deferred tax asset) ……………………………………………….. (80,000,000)
E19-20B (15–20 minutes)
(a) Income Tax Expense ………………………………………. 90,000
Deferred Tax Asset…………………………………………. 57,500
Future Years
2015
2016
2017
2018
Total
Future taxable (deductible)
amounts
Taxable income for 2014 ………………………………………… $350,000
Tax rate ………………………………………………………………… 40%
Income tax payable for 2014 …………………………………… $140,000
Deferred tax benefit for 2014 ………………………………….. $ (57,500)
Deferred tax expense for 2014 ……………………………….. 7,500
Net deferred tax benefit for 2014 …………………………….. (50,000)
Current tax expense for 2014 …………………………..…….. 140,000
Income tax expense for 2014 ………………………………….. $ 90,000
E19-20B (Continued)
(b) Current assets
Deferred tax asset …………………………………………………… $57,500
E19-21B (20–25 minutes)
(a) Income Tax Expense ……………………………………… 70,000
Deferred Tax Asset ………………………………………… 84,000
Temporary
Difference
Future Taxable
(Deductible)
Amounts
Tax
Rate
Deferred Tax
Classification
(Asset)
Liability
Installment sale
*$160,000*
40%1
$64,000
Current –
$32,000
E19-21B (Continued)
Deferred tax liability at the end of 2014 …………………………... $ 94,000
Deferred tax liability at the beginning of 2014 …………………. 0
Deferred tax expense for 2014 (increase
required in deferred tax liability) …………………………………. $ 94,000
(b) Other current assets
Deferred tax asset…………………………………………………… $84,000
Current liabilities
Deferred tax liability ……………………………………………….. $32,000
The classification of the deferred tax liability assumes the installment
receivable is classified as current / noncurrent based on the expected
payment terms. Alternatively, the deferred tax liability could be classified
as current if it is assumed that the related installment receivable is
classified as a current asset. The installment receivable is classified as
current when it is a trade practice for the entity to sell on an installment
basis.
E19-22B (15–20 minutes)
(a) Income Tax Expense ……………………………………… 91,000
Deferred Tax Asset ………………………………………… 42,000
Temporary
Difference
Future Taxable
(Deductible) Amounts
Tax
Rate
Deferred Tax
(Asset)
Liability
Accounts receivable
$180,000
35%
*$63,000
Warranty accrual
35%
Deferred tax asset at the end of 2014 …………………………….. $(42,000)
Deferred tax asset at the beginning of 2014 …………………… 0
Deferred tax benefit for 2014 (increase
required in deferred tax asset) …………………………………… $(42,000)
E19-22B (Continued)
(b)
Temporary
Difference
Resulting Deferred Tax
Classification
(Asset)
Liability
Accounts receivable
$63,000
Current
Warranty accrual
$(42,000)
Current
The deferred tax asset is current because the related liability is current.
E19-23B (30–35 minutes)
(a) 2013
Income Tax Expense ………………………………………… 92,000
Income Tax Payable ($230,000 X 40%) ………… 92,000
2014
Income Tax Refund Receivable …………………………. 92,000
Deferred Tax Asset…………………………………………… 36,750
E19-23B (Continued)
2016
Income Tax Expense ……………………………………….. 79,500
Income Tax Payable ………………………………….. 33,000*
Deferred Tax Asset ……………………………………. 46,500
*[($265,000 – $155,000) X 30%]
(c) Operating loss before income taxes …………………. $(50,000)
Income tax benefit
Benefit due to loss carryforward ………………… 9,750
Net loss ……………………………………………………….….. $(40,250)
E19-24B (30–35 minutes)
(a) 2013
Income Tax Expense ………………………………………. 92,000
Income Tax Payable ($230,000 X 40%)……….. 92,000
E19-24B (Continued)
2015
Deferred Tax Asset…………………………………………. 9,750
Benefit Due to Loss Carryforward …………….. 9,750*
(b) Operating loss before income taxes ………………… $(335,000)
Income tax benefit
Benefit due to loss carryback …………………… $92,000
Benefit due to loss carryforward ………………. 22,050 114,050
Net loss …………………………………………………………. $(220,950)
E19-25B (15–20 minutes)
(a) 2013
Income Tax Expense ($70,000 X .30) ……………….. 21,000
Income Tax Payable ………………………………… 21,000
Benefit Due to Loss Carryforward …………………… 30,450
Allowance to Reduce Deferred Tax Asset
to Expected Realizable Value
(0.60 X $50,750) ……………………………………. 30,450
E19-25B (Continued)
2017
Income Tax Expense ……………………………………… 75,250
Income Taxes Payable
($215,000 – $55,000) X 35% ………………….. 56,000
Deferred Tax Asset …………………………………. 19,250