Intermediate accounting solution of c16.docx

Intermediate accounting solution of c16.docx

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Intermediateaccountingsolutionofc16

Chapter16AccountingforIncomeTaxes

Exercises

Exercise16-1

Requirement1

Sincetaxableincomeislessthanpretaxaccountingincome,afuturetaxableamountwilloccurwhenthetemporarydifferencereverses.Thismeansadeferredtaxliabilityshouldberecordedtoreflectthefuturetaxconsequencesofthetemporarydifference.

Incometaxexpense（tobalance）140,000

Deferredtaxliability（[$400,000-250,000]x35%）52,500

Incometaxpayable（$250,000x35%）87,500

Asaresult,netincomeis$260,000:

Pretaxaccountingincome$400,000

Incometaxexpense140,000

Netincome$260,000

Requirement2

Initsbalancesheet,Alviswillreportthe$52,500deferredtaxliabilityamongeitheritscurrentorlong-termliabilitiesdependingonthecauseofthetemporarydifferenceandthe$87,500incometaxpayableasacurrentliability.

Exercise16-2

Requirement1

（$inmillions）

CurrentFuture

YearTaxable

2011Amount

[total]

Pretaxaccountingincome45

Temporarydifference:

Depreciation（$30–20）–（$28–13）=（5）15（$28–13）

Taxableincome（taxreturn）40

Enactedtaxrate40%40%

Taxpayablecurrently16

Deferredtaxliability6

Deferredtaxliability:

Endingbalance（balancecurrentlyneeded）$6

Less:

beginningbalance（$30–20）x40%（4）

Changeneededtoachievedesiredbalance$2

Journalentryattheendof2011

Incometaxexpense（tobalance）18

Deferredtaxliability（determinedabove）2

Incometaxpayable（determinedabove）16

Requirement2

（$inmillions）

Pretaxincome$45

Incometaxexpense（18）

Netincome$27

Exercise16-3

（$inmillions）

December31

2011201220132014

Depreciableasset（net）:

Accountingbasis$80（20）$60（20）$40（20）$20（20）$0

Taxbasis80（25）55（33）22（15）7（7）0

Temporarydifference5$513$18（5）$13（13）$0

Taxrate40%40%40%40%

Deferredtaxliability$2$7.2$5.2$0

originatingreversing

differencesdifferences

Exercise16-4

Incometaxexpense（tobalance）830,000

Deferredtaxasset（$300,000x40%）120,000

Incometaxpayable（given）950,000

Exercise16-5

Incometaxexpense（tobalance）30,035,000

Deferredtaxasset（[$1millionx40%]-$435,000）35,000

Incometaxpayable（$75millionx40%）30,000,000

Exercise16-6

D1.Accrualoflosscontingency;tax-deductiblewhenpaid.

D2.Newspapersubscriptions:

taxablewhenreceived;recognizedforfinancialreportingwhenearned.

T3.Prepaidrent;tax-deductiblewhenpaid.

D4.Accruedbondinterestexpense;tax-deductiblewhenpaid.

T5.Prepaidinsurance;tax-deductiblewhenpaid.

D6.Unrealizedlossfromrecordinginvestmentsavailableforsaleatfairvalue（tax-deductiblewheninvestmentsaresold）.

D7.Baddebtexpense:

allowancemethodforfinancialreporting;directwrite-offfortaxpurposes.

D8.Advancerentreceiptsonanoperatinglease（asthelessor）;taxablewhenreceived.

T9.Straight-linedepreciationforfinancialreporting;accelerateddepreciationfortaxpurposes.

D10.Accruedexpenseforemployeepostretirementbenefits;tax-deductiblewhensubsequentpaymentsaremade.

Exercise16-7

1.Liability–losscontingency

2.Liability–subscriptions

3.Prepaidrent

4.Accruedbondinterestpayable

5.Prepaidinsurance

6.Unrealizedlossoninvestments（shareholders’equityaccount）

7.Allowanceforuncollectibleaccounts;andthusaccountsreceivable（net）

8.Liability–unearnedrentrevenue

9.Accumulateddepreciation;andthusdepreciableassets（net）

10.Liability–postretirementbenefits

Exercise16-8

（$inthousands）Situation

1234

a.Taxableincome$85$215$195$260

Taxrate40%40%40%40%

Incometaxpayable$34$86$78$104

b.Futuredeductibleamounts$（15）$（20）$（20）

Taxrate40%40%40%40%

Deferredtaxasset-bal.$（6）0$（8）$（8）

Beginningoftheyear:

2094

c.Deferredtaxasset:

（dr）cr$（4）0$1$（4）

d.Futuretaxableamounts$15$15$30

Taxrate40%40%40%40%

Deferredtaxliability-bal.$0$6$6$12

Beginningoftheyear:

0220

e.Deferredtaxliability:

（dr）cr$0$4$4$12

f.Incometaxpayablecurrently$34$86$78$104

Deferredtaxasset:

（dr）cr（4）01（4）

Deferredtaxliability:

（dr）cr04412

Incometaxexpense$30$90$83$112

Exercise16-9

（$millions）12345678

Pretaxaccountingincome$100$100$100$100$100$100$100$100

Temporarydifferences:

Incomestatementfirst:

Revenue（20）（15）（15）（15）

Expense2020202020

Taxreturnfirst:

Revenue20155

Expense（20）（10）（10）

Taxableincome$120$80$120$80$105$135$95$100

Exercise16-10

Requirement1

（$inmillions）

CurrentFuture

YearDeductible

2011Amounts

Temporarydifference:

（70）

Taxableincome180

Enactedtaxrate40%40%

Taxpayablecurrently72

Deferredtaxasset（28）

Deferredtaxasset:

Endingbalance（balancecurrentlyneeded）$28

Less:

beginningbalance（$75x40%）（30）

Changeneededtoachievedesiredbalance$

（2）

Journalentryattheendof2011

Incometaxexpense（tobalance）74

Deferredtaxasset（determinedabove）2

Incometaxpayable（determinedabove）72

Requirement2

（$inmillions）

Incometaxexpense（tobalance）74

Deferredtaxasset（determinedabove）2

Incometaxpayable（determinedabove）72

Incometaxexpense14

Valuationallowance–deferredtaxasset（1/2x$28）14

Ofcourse,thesetwoentriescanbecombined.

Exercise16-11

Requirement1

（$inmillions）

CurrentFuture

YearDeductible

2011Amounts

Temporarydifference:

（70）

Taxableincome180

Enactedtaxrate40%40%

Taxpayablecurrently72

Deferredtaxasset（28）

Deferredtaxasset:

Endingbalance（balancecurrentlyneeded）$28

Less:

beginningbalance（$75x40%）（30）

Changeneededtoachievedesiredbalance$

（2）

Journalentriesattheendof2011

Incometaxexpense（tobalance）74

Deferredtaxasset（determinedabove）2

Incometaxpayable（determinedabove）72

Valuationallowance–deferredtaxasset10

Incometaxexpense10

Ofcourse,thesetwoentriescanbecombined.

Exercise16-11（concluded）

Requirement2

（$inmillions）

Incometaxexpense（tobalance）74

Deferredtaxasset（determinedabove）2

Incometaxpayable（determinedabove）72

Incometaxexpense4

Valuationallowance–deferredtaxasset（[1/2x$28]–$10）4

Ofcourse,thesetwoentriescanbecombined.

Exercise16-12

Requirement1

ThespecificcitationthatspecifieshowafirmshoulddeterminewhetheravaluationallowancefordeferredtaxassetsisneededisFASBASC740–10–30–17:

“IncomeTaxes–Overall–InitialMeasurementEstablishmentofaValuationAllowanceforDeferredTaxAssets–EstablishmentofaValuationAllowanceforDeferredTaxAssets.”

Requirement2

Specifically,theguidelinesare:

740–10–30-17Allavailableevidence,bothpositiveandnegative,isconsideredtodeterminewhether,basedontheweightofthatevidence,avaluationallowancefordeferredtaxassetsisneeded.Informationaboutanentity'scurrentfinancialpositionanditsresultsofoperationsforthecurrentandprecedingyearsordinarilyisreadilyavailable.Thathistoricalinformationissupplementedbyallcurrentlyavailableinformationaboutfutureyears.Sometimes,however,historicalinformationmaynotbeavailable（forexample,start-upoperations）oritmaynotbeasrelevant（forexample,iftherehasbeenasignificant,recentchangeincircumstances）andspecialattentionisrequired.

Exercise16-13

Requirement1

（$inthousands）

CurrentFuture

YearTaxable

2011Amounts

Pretaxaccountingincome300

Permanentdifference:

Municipalbondinterest（40）

Temporarydifference:

Depreciation（10）10

Taxableincome（incometaxreturn）250

Enactedtaxrate40%40%

Taxpayablecurrently100

Deferredtaxliability4

Deferredtaxliability:

Endingbalance（balancecurrentlyneeded）$4

Less:

beginningbalance0

Changeneededtoachievedesiredbalance$4

Journalentryattheendof2011

Incometaxexpense（tobalance）104

Deferredtaxliability（determinedabove）4

Incometaxpayable（determinedabove）100

Requirement2

（$inthousands）

Pretaxincome$300

Incometaxexpense（104）

Netincome$196

Exercise16-14

Requirement1

（$inthousands）

CurrentFutureFuture

YearTaxableDeductible

2011AmountsAmounts

Pretaxaccountingincome977

Permanentdifference:

Municipalbondinterest（32）

Temporarydifferences:

Depreciation（55）85

Warrantyexpense10（10）

Taxableincome（incometaxreturn）900

Enactedtaxrate40%40%40%

Taxpayablecurrently360

Deferredtaxliability34

Deferredtaxasset（4）

DeferredtaxDeferredtax

liabilityasset

Endingbalances（balancescurrentlyneeded）:

$34$4

Less:

beginningbalances:

（12）（0）

Changeneededtoachievedesiredbalances$22$4

Journalentryattheendof2011

Incometaxexpense（tobalance）378

Deferredtaxasset（determinedabove）4

Deferredtaxliability（determinedabove）22

Incometaxpayable（determinedabove）360

Requirement2

（$inthousands）

Pretaxincome$977

Incometaxexpense（378）

Netincome$599

Exercise16-15

Requirement1

（$inmillions）

CurrentFuture

YearDeductible

20