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Chapter 19: 2Q (page 1092)
What are the two objectives of accounting for income taxes?
Accounting is referred to as the first function of an accounting department. It involves the preparation of various accounting schedules to record the inflow and outflow of cash.
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During 2017, Kate Holmes Co.鈥檚 first year of operations, the company reports pretax financial income at \(250,000. Holmes鈥檚 enacted tax rate is 45% for 2017 and 40% for all later years. Holmes expects to have taxable income in each of the next 5 years. The effects on future tax returns of temporary differences existing at December 31, 2017, are summarized as follows. Future Years 2018 2019 2020 2021 2022 Total Future taxable (deductible) amounts: Installment sales \)32,000 \(32,000 \)32,000 \( 96,000 Depreciation 6,000 6,000 6,000 \)6,000 \(6,000 30,000 Unearned rent (50,000) (50,000) (100,000) Instructions (a) Complete the schedule below to compute deferred taxes at December 31, 2017. (b) Compute taxable income for 2017. (c) Prepare the journal entry to record income taxes payable, deferred taxes, and income tax expense for 2017. Future Taxable December 31, 2017 (Deductible) Tax Deferred Tax Temporary Difference Amounts Rate (Asset) Liability Installment sales \) 96,000 Depreciation 30,000 Unearned rent (100,000) Totals $
(Deferred Taxes, Income Effects) Stephanie Delaney, CPA, is the newly hired director of corporate taxation for Acme Incorporated, which is a publicly traded corporation. Ms. Delaney鈥檚 first job with Acme was the review of the company鈥檚 accounting practices on deferred income taxes. In doing her review, she noted differences between tax and book depreciation methods that permitted Acme to realize a sizable deferred tax liability on its balance sheet. As a result, Acme paid very little in income taxes at that time.
Delaney also discovered that Acme has an explicit policy of selling off plant assets before they reversed in the deferred tax liability account. This policy, coupled with the rapid expansion of its plant asset base, allowed Acme to 鈥渄efer鈥� all income taxes payable for several years, even though it always has reported positive earnings and an increasing EPS. Delaney checked with the legal department and found the policy to be legal, but she鈥檚 uncomfortable with the ethics of it.
Instructions
Answer the following questions.
Felicia Rashad Corporation has pretax financial income (or loss) equal to taxable income (or loss) from 2009 through 2017 as follows.Income (Loss) Tax Rate 2009 $ 29,000 30% 2010 40,000 30 2011 17,000 35 2012 48,000 50 2013 (150,000) 40 2014 90,000 40 2015 30,000 40 2016 105,000 40 2017 (60,000) 45Pretax financial income (loss) and taxable income (loss) were the same for all years since Rashad has been in business. Assume the carryback provision is employed for net operating losses. In recording the benefits of a loss carryforward, assume that it is more likely than not that the related benefits will be realized. Instructions (a) What entry(ies) for income taxes should be recorded for 2013? (b) Indicate what the income tax expense portion of the income statement for 2013 should look like. Assume all income (loss) relates to continuing operations. (c) What entry for income taxes should be recorded in 2014? (d) How should the income tax expense section of the income statement for 2014 appear? (e) What entry for income taxes should be recorded in 2017? (f) How should the income tax expense section of the income statement for 2017 appear?
The pretax financial income of Truttman Company differs from its taxable income throughout each of 4 years as follows. Pretax Taxable Year Financial Income Income Tax Rate 2017 \(290,000 \)180,000 35% 2018 320,000 225,000 40 2019 350,000 260,000 40 2020 420,000 560,000 40
Pretax financial income for each year includes a nondeductible expense of $30,000 (never deductible for tax purposes). The remainder of the difference between pretax financial income and taxable income in each period is due to one depreciation temporary difference. No deferred income taxes existed at the beginning of 2017. Instructions (a) Prepare journal entries to record income taxes in all 4 years. Assume that the change in the tax rate to 40% was not enacted until the beginning of 2018. (b) Prepare the income statement for 2018, beginning with Income before 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�
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