Two Problems Set – Harvard Company and Raymond Incorporated

| June 5, 2016

Question 1

Harvard Company reports pre-tax financial income of $100,000 for 2014. The following items cause taxable income to be different than pre-tax financial income:

Insurance expenses amounting to $20,000 for the year 2014 were owed. These were subsequently paid in January of 2015.
At year-end 12/31/2014, tenants had prepaid Harvard rent of $30,000 for the year 2014.
Fines for pollution appear as an expense of $5,000 on the income statement
Harvard’s tax rate is 40% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2014.


a) Compute taxable income and income taxes payable for 2014.

b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014.

Question 2

For both GAAP and tax purposes, Raymond Incorporated reported the following pre-tax income (loss) for each of the years:

Year Pre-tax income Tax Rate

2012 $160,000 25%

2013 130,000 25%

2014 (500,000) 30%

2015 70,000 30%


Assuming that the carry back provision is used, prepare all the necessary journal entries for each year 2012-2015 to record income tax expense (benefit) and income tax payable (refundable), and the tax effects of the loss carry back and loss carry forward. Also assume that a valuation allowance would be required at the end of 2015 for 30% of any remaining Deferred Tax Asset resulting from a Net Operating Loss carry forward.

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