CHAPTER 19 ACCOUNTING FOR INCOME TAXES

| November 9, 2018

Pr. 19-115—Multiple temporary differences.

The following information is available
for the first three years of operations for Cooper Company:

1. Year

Taxable
Income

2012

$500,000

2013

360,000

2014

400,000

2.
On
January 2, 2012, heavy equipment costing $600,000 was purchased. The equipment
had a life of 5 years and no salvage value. The straight-line method of
depreciation is used for book purposes and the tax depreciation taken each year
is listed below:

Tax Depreciation

2012

2013

2014

2015

Total

$198,000

$270,000

$90,000

$42,000

$600,000

3.
On
January 2, 2013, $270,000 was collected in advance for rental of a building for
a three-year period. The entire $270,000 was reported as taxable income in
2013, but $180,000 of the $270,000 was reported as unearned revenue at December
31, 2013 for book purposes.

4.
The
enacted tax rates are 40% for all years.

Instructions

(a)
Prepare
a schedule comparing depreciation for financial reporting and tax purposes.
(b)
Determine
the deferred tax (asset) or liability at the end of 2012.
(c)
Prepare
a schedule of future taxable and (deductible) amounts at the end of 2013.
(d)
Prepare
a schedule of the deferred tax (asset) and liability at the end of 2013.
(e)
Compute
the net deferred tax expense (benefit) for 2013.
(f)
Prepare
the journal entry to record income tax expense, deferred income taxes, and
income tax payable for 2013.

To download more slides, ebook, solutions and test bank, visit
http://downloadslide.blogspot.com

Pr. 19-116—Deferred tax asset.

Farmer Inc. began business on January
1, 2012. Its pretax financial income for the first 2 years was as follows:

2012

$240,000

2013

560,000

The following items caused the only
differences between pretax financial income and taxable income.

To download more slides, ebook, solutions and test bank, visit
http://downloadslide.blogspot.com

Accounting for Income Taxes 19 – 39
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Pr. 19-116(cont.)

1.
In
2012, the company collected $240,000 of rent; of this amount, $80,000 was
earned in 2012; the other $160,000 will be earned equally over the 2013–2014
period. The full $240,000 was included in taxable income in 2012.

2.
The
company pays $10,000 a year for life insurance on officers.

3.
In
2013, the company terminated a top executive and agreed to $90,000 of severance
pay. The amount will be paid $30,000 per year for 2013–2015. The 2013 payment
was made. The $90,000 was expensed in 2013. For tax purposes, the severance pay
is deductible as it is paid.

The enacted tax rates existing at
December 31, 2012 are:

2012

30%

2014

40%

2013

35%

2015

40%

Instructions

(a)
Determine
taxable income for 2012 and 2013.
(b)
Determine
the deferred income taxes at the end of 2012, and prepare the journal entry to
record income taxes for 2012.
(c)
Prepare
a schedule of future taxable and (deductible) amounts at the end of 2013.
(d)
Prepare
a schedule of the deferred tax (asset) and liability at the end of 2013.
(e)
Compute
the net deferred tax expense (benefit) for 2013.
(f)
Prepare
the journal entry to record income taxes for 2013.
(g)
Show
how the deferred income taxes should be reported on the balance sheet at
December 31, 2013.

Pr. 19-117—Interperiod
tax allocation with change in enacted tax rates.

Murphy
Company purchased equipment for $300,000 on January 2, 2012, its first day of
operations. For book purposes, the equipment will be depreciated using the
straight-line method over three years with no salvage value. Pretax financial
income and taxable income are as follows:

Pretax financial income

2012

2013

2014

$224,000

$260,000

$300,000

Taxable income

184,000

260,000

340,000

The temporary difference between pretax financial income
and taxable income is due to the use of accelerated depreciation for tax
purposes.

Instructions

(a)
Prepare
the journal entries to record income taxes for all three years (expense,
deferrals, and liabilities) assuming that the enacted tax rate applicable to
all three years is 30%.

(b)
Prepare
the journal entries to record income taxes for all three years (expense, deferrals,
and liabilities) assuming that the enacted tax rate as of 2012 is 30% but that
in the middle of 2013, Congress raises the income tax rate to 35% retroactive
to the beginning of 2013.

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com

Accounting for Income Taxes 19 – 41

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