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Chapter 19: 18Q (page 1093)
What controversy relates to the accounting for net operating loss carryforwards?
Accounting involves reporting each business activity to its relevant accountso that the organization can manage its funds effectively.It is thefirst function of the accounting department.
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Explain the meaning of a temporary difference as it relates to deferred tax computations, and give three examples.
The following information has been obtained for Gocker Corporation.
1. Prior to 2017, taxable income and pretax financial income were identical.
2. Pretax financial income is \(1,700,000 in 2017 and \)1,400,000 in 2018.
3. On January 1, 2017, equipment costing \(1,200,000 is purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Hint: Use the half-year convention for tax purposes, as discussed in Appendix 11A.)
4. Interest of \)60,000 was earned on tax-exempt municipal obligations in 2018.
5. Included in 2018 pretax financial income is a gain on discontinued operations of $200,000, which is fully taxable.
6. The tax rate is 35% for all periods.
7. Taxable income is expected in all future years.
Instructions (a) Compute taxable income and income taxes payable for 2018. (b) Prepare the journal entry to record 2018 income tax expense, income taxes payable, and deferred taxes. (c) Prepare the bottom portion of Gocker鈥檚 2018 income statement, beginning with 鈥淚ncome from continuing operations before income taxes.鈥� (d) Indicate how deferred income taxes should be presented on the December 31, 2018, balance sheet.
Clydesdale Corporation has a cumulative temporary difference related to depreciation of \(580,000 at December 31, 2017. This difference will reverse as follows: 2018, \)42,000; 2019, \(244,000; and 2020, \)294,000. Enacted tax rates are 34% for 2018 and 2019, and 40% for 2020. Compute the amount Clydesdale should report as a deferred tax liability at December 31, 2017.
Rode Inc. incurred a net operating loss of \(500,000 in 2017. Combined income for 2015 and 2016 was \)350,000. The tax rate for all years is 40%. Rode elects the carryback option. Prepare the journal entries to record the benefits of the loss carryback and the loss carryforward.
Briefly describe some of the similarities and differences between GAAP and IFRS with respect to income tax accounting.
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