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Chapter 19: 4CA_a (page 1106)

This year, Gumowski Company has each of the following items in its income statement. 1. Gross profits on installment sales. 2. Revenues on long-term construction contracts. 3. Estimated costs of product warranty contracts. 4. Premiums on officers鈥� life insurance policies with Gumowski as beneficiary. Instructions (a) Indicate where deferred income taxes are reported in the financial statements.

Short Answer

Expert verified

Insurance policies are plans that secure the individual from suffering any contingency. Some of the policies are life insurance, fire insurance, marine insurance, etc.

Step by step solution

01

(1) Gross profits on installment sales

It will be recognized as deferred tax income when the amount of gross profits on installment sales are added to the pretax financial income during the current year and included in the taxable amount.

02

(2) Revenues on long-term construction contracts

The organization will recognize it as deferred income taxes whenever it recognizes the revenue from the long-term construction contract.

03

(3) Estimated costs of product warranty contracts

As per the financial reporting purpose, the warranty cost (estimated) will be recognized upon sale, and the money has been paid. Only then will it be recognized as the deferred tax income.

04

(4) Premiums on officers’ life insurance policies with Gumowski as beneficiary

It will be recognized as a permanent difference since it will be used as income-tax deductible while calculating the firm's taxable income.

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Most popular questions from this chapter

Question: Novotna Inc.鈥檚 only temporary difference at the beginning and end of 2016 is caused by a \(3 million deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2017 and 2018. The related deferred tax liability at the beginning of the year is \)1,200,000. In the third quarter of 2016, a new tax rate of 34% is enacted into law and is scheduled to become effective for 2018. Taxable income for 2016 is $5,000,000, and taxable income is expected in all future years.

Instructions

(a) Determine the amount reported as a deferred tax liability at the end of 2016. Indicate proper classification(s).

(b) Prepare the journal entry (if any) necessary to adjust the deferred tax liability when the new tax rate is enacted into law.

(c) Draft the income tax expense portion of the income statement for 2016. Begin with the line 鈥淚ncome before income taxes.鈥� Assume no permanent differences exist.

Lee Company鈥檚 current income taxes payable related to its taxable income for 2017 is \(320,000. In addition, Lee鈥檚 deferred tax liability increased \)40,000 and its deferred tax asset increased $10,000 during 2017. What is Lee鈥檚 income tax expense for 2017?

Use the information for Rode Inc. given in BE19-13. 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.

How are deferred tax assets and deferred tax liabilities reported on the statement of financial position under IFRS?

Meyer reported the following pretax financial income (loss) for the years 2015鈥�2019. 2015 $240,000 2016 350,000 2017 120,000 2018 (570,000) 2019 180,000 Pretax financial income (loss) and taxable income (loss) were the same for all the years involved. The enacted tax rate was 34% for 2015 and 2016, and 40% for 2017鈥�2019. Assume the carryback provision is used for the net operating losses. Instructions (a) Prepare the journal entries for the years 2017鈥�2019 to record the income tax expense, 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-fifth of the benefits of the loss carryforward will not be realized. (b) Prepare the income tax section of the 2018 income statement beginning with the line 鈥淚ncome (loss) before income taxes.鈥�
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