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Chapter 19: 1Q (page 1092)
Explain the difference between pretax financial income and taxable income.
Income is a term used when an organization earns money for the products and services offered to sell in the potential market to its customers. Without a regular income, an organization cannot survive in the market.
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What are the two objectives of accounting for income taxes?
Beilman Inc. reports the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss.) Year Pretax Income (Loss) Tax Rate 2015 $120,000 40% 2016 90,000 40 2017 (280,000) 45 2018 120,000 45 The tax rates listed were all enacted by the beginning of 2015.Instructions (a) Prepare the journal entries for years 2015鈥�2018 to record income tax expense (benefit) and income taxes payable (refundable), and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-half of the benefits of the loss carryforward will not be realized. (b) Prepare the income tax section of the 2017 income statement beginning with the line 鈥淥perating loss before income taxes.鈥� (c) Prepare the income tax section of the 2018 income statement beginning with the line 鈥淚ncome before income taxes.鈥�
At December 31, 2017, Hillyard Corporation has a deferred tax asset of \(200,000. After a careful review of all available evidence, it is determined that it is more likely than not that \)60,000 of this deferred tax asset will not be realized. Prepare the necessary journal entry.
At the end of 2016, Lucretia McEvil Company has \(180,000 of cumulative temporary differences that will result in reporting the following future taxable amounts. 2017 \) 60,000 2018 50,000 2019 40,000 2020 30,000 \(180,000Tax rates enacted as of the beginning of 2015 are: 2015 and 2016 40% 2017 and 2018 30% 2019 and later 25% McEvil鈥檚 taxable income for 2016 is \)320,000. Taxable income is expected in all future years. Instructions (a) Prepare the journal entry for McEvil to record income taxes payable, deferred income taxes, and income tax expense for 2016, assuming that there were no deferred taxes at the end of 2015. (b) Prepare the journal entry for McEvil to record income taxes payable, deferred income taxes, and income tax expense for 2016, assuming that there was a balance of $22,000 in a Deferred Tax Liability account at the end of 2015.
South Carolina Corporation has one temporary difference at the end of 2017 that will reverse and cause taxable amounts of \(55,000 in 2018, \)60,000 in 2019, and \(65,000 in 2020. South Carolina鈥檚 pretax financial income for 2017 is \)300,000, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2017. Instructions (a) Compute taxable income and income taxes payable for 2017. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (c) Prepare the income tax expense section of the income statement for 2017, beginning with the line 鈥淚ncome before income taxes.鈥�
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