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Chapter 19: 4Q (page 1092)
Differentiate between an originating temporary difference and a reversing difference.
Income tax is a term used when the government of a country imposes a tax on the total income earned by an individual or a firm so that it can benefit the whole economy.
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Dexter Company appropriately uses the asset-liability method to record deferred income taxes. Dexter reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year. Dexter received rent revenues in advance this year. These revenues are included in this year鈥檚 taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability. Instructions (c) How should Dexter classify the deferred tax consequences of the temporary differences on its balance sheet?
How are deferred tax assets and deferred tax liabilities reported on the balance sheet?
SpamelaHamderson Inc. reports the following pretax income (loss) for both financial reporting purposes and tax purposes. (Assume the carryback provision is used for a net operating loss.) Income (Loss) Tax Rate 2009 \( 29,000 30% 2010 40,000 30 2011 17,000 35 2012 48,000 50 2013 (150,000) 40 2014 90,000 40 2015 30,000 40 2016 105,000 40 2017 (60,000) 45 Year Pretax Income (Loss) Tax Rate 2015 \)120,000 34% 2016 90,000 34 2017 (280,000) 38 2018 220,000 38 The tax rates listed were all enacted by the beginning of 2015. Instructions (a) Prepare the journal entries for the years 2015鈥�2018 to record income tax expense (benefit) and income taxes payable (refundable) and the tax effects of the loss carryback and carryforward, assuming that at the end of 2017 the benefits of the loss carryforward are judged more likely than not to be realized in the future. (b) Using the assumption in (a), 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 journal entries for 2017 and 2018, assuming that based on the weight of available evidence, it is more likely than not that one-fourth of the benefits of the loss carryforward will not be realized. (d) Using the assumption in (c), prepare the income tax section of the 2017 income statement beginning with the line 鈥淥perating loss before income taxes.鈥�
In 2017, Amirante Corporation had pretax financial income of \(168,000 and taxable income of \)120,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40%. Compute the amount to be reported as income taxes payable at December 31, 2017.
Bandung Corporation began 2017 with a \(92,000 balance in the Deferred Tax Liability account. At the end of 2017, the related cumulative temporary difference amounts to \)350,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2017 is \(525,000, the tax rate for all years is 40%, and taxable income for 2017 is \)405,000. Instructions (a) Compute 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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