ACCOUNTING

depreciation exceeded its book depreciation by $36,000. Shamrock’s tax rate for 2017 and years thereafter is 40%. In its December 31, 2017, balance sheet, what amount of deferred tax liability should be reported?

Deferred tax liability to be reported $

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At December 31, 2017, Larkspur Inc. had a deferred tax asset of $31,100. At December 31, 2018, the deferred tax asset is $62,000. The corporation’s 2018 current tax expense is $60,800. What amount should Larkspur report as total 2018 income tax expense?

Total income tax expense for 2018 $

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At December 31, 2017, Cullumber Corporation had a deferred tax liability of $582,800, resulting from future taxable amounts of $1,880,000 and an enacted tax rate of 31%. In May 2018, a new income tax act is signed into law that raises the tax rate to 38% for 2018 and future years. Prepare the journal entry for Cullumber to adjust the deferred tax liability.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and Explanation Debit Credit
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Wildhorse Inc. incurred a net operating loss of $532,000 in 2017. Combined income for 2015 and 2016 was $321,000. The tax rate for all years is 30%. Wildhorse elects the carryback option. Assume that it is more likely than not that the entire net operating loss carryforward will not be realized in future years. Prepare all the journal entries necessary at the end of 2017.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and Explanation Debit Credit
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(To record carryback.)
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(To record carryforward.)
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(To record allowance.)

Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes. For each item below, indicate whether it involves:

(1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset.
(2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability.
(3) A permanent difference.

Use the appropriate number to indicate your answer for each.

(a) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif The MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets.
 
(b) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif A landlord collects some rents in advance. Rents received are taxable in the period when they are received.
 
(c) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif Expenses are incurred in obtaining tax-exempt income.
 
(d) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif Costs of guarantees and warranties are estimated and accrued for financial reporting purposes.
 
(e) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes.
 
(f) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes, but the assets’ lives are shorter for tax purposes.
 
(g) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif Interest is received on an investment in tax-exempt municipal obligations.
 
(h) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif Proceeds are received from a life insurance company because of the death of a key officer. (The company carries a policy on key officers.)
 
(i) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif The tax return reports a deduction for 80% of the dividends received from U.S. corporations. The cost method is used in accounting for the related investments for financial reporting purposes.
 
(j) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif Estimated losses on pending lawsuits and claims are accrued for books. These losses are tax deductible in the period(s) when the related liabilities are settled.
 
(k) https://edugen.wileyplus.com/edugen/art2/common/pixel.gif Expenses on stock options are accrued for financial reporting purposes.
Swifty Company has the following two temporary differences between its income tax expense and income taxes payable.

2017 2018 2019
Pretax financial income $867,000 $956,000 $940,000
Excess depreciation expense on tax return (29,500 ) (41,700 ) (10,300 )
Excess warranty expense in financial income 19,800   10,300   8,300  
Taxable income $857,300   $924,600   $938,000  

The income tax rate for all years is 40%.

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(a)

Assuming there were no temporary differences prior to 2017, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, 2018, and 2019.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and Explanation Debit Credit
2017
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2018
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2019
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Bonita Co. establishes a $136,000,000 liability at the end of 2017 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2018. Also, at the end of 2017, the company has $68,000,000 of temporary differences due to excess depreciation for tax purposes, $9,520,000 of which will reverse in 2018. The enacted tax rate for all years is 40%, and the company pays taxes of $87,040,000 on $217,600,000 of taxable income in 2017. Bonita expects to have taxable income in 2018.

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Determine the deferred taxes to be reported at the end of 2017.

Deferred tax assets $

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Deferred tax liabilities $

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Indicate how the deferred taxes computed above are to be reported on the balance sheet.

Bonita Co. Balance Sheet

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Assuming that the only deferred tax account at the beginning of 2017 was a deferred tax liability of $13,600,000, draft the income tax expense portion of the income statement for 2017, beginning with the line “Income before income taxes.” (Hint: You must first compute (1) the amount of temporary difference underlying the beginning $13,600,000 deferred tax liability, then (2) the amount of temporary differences originating or reversing during the year, and then (3) the amount of pretax financial income.)

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