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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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Teri Hatcher Inc., in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2016. Book Basis Tax Basis Equipment (net) \(400,000 \)340,000 Estimated warranty liability \(200,000 \) 鈥�0鈥� It is estimated that the warranty liability will be settled in 2017. The difference in equipment (net) will result in taxable amounts of \(20,000 in 2017, \)30,000 in 2018, and \(10,000 in 2019. The company has taxable income of \)520,000 in 2016. As of the beginning of 2016, the enacted tax rate is 34% for 2016鈥�2018, and 30% for 2019. Hatcher expects to report taxable income through 2019.Instructions (a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (b) Indicate how deferred income taxes will be reported on the balance sheet at the end of 2016.
Presented below are two independent situations related to future taxable and deductible amounts resulting from temporary differences existing at December 31, 2017. 1. Mooney Co. has developed the following schedule of future taxable and deductible amounts. 2018 2019 2020 2021 2022 Taxable amounts \(300 \)300 \(300 \) 300 \(300 Deductible amount 鈥� 鈥� 鈥� (1,600) 鈥� 2. Roesch Co. has the following schedule of future taxable and deductible amounts. 2018 2019 2020 2021 Taxable amounts \)300 \(300 \) 300 \(300 Deductible amount 鈥� 鈥� (2,300) 鈥� Both Mooney Co. and Roesch Co. have taxable income of \)4,000 in 2017 and expect to have taxable income in all future years. The tax rates enacted as of the beginning of 2017 are 30% for 2017鈥�2020 and 35% for years thereafter. All of the underlying temporary differences relate to noncurrent assets and liabilities. Instructions For each of these two situations, compute the net amount of deferred income taxes to be reported at the end of 2017, and indicate how it should be classified on the balance sheet.
Addison Co. has one temporary difference at the beginning of 2017 of \(500,000. The deferred tax liability established for this amount is \)150,000, based on a tax rate of 30%. The temporary difference will provide the following taxable amounts: \(100,000 in 2018, \)200,000 in 2019, and $200,000 in 2020. If a new tax rate for 2020 of 20% is enacted into law at the end of 2017, what is the journal entry necessary in 2017 (if any) to adjust deferred taxes?
Youngman Corporation has temporary differences at December 31, 2017, that result in the following deferred taxes. Deferred tax liability related to depreciation difference $38,000 Deferred tax asset related to warranty liability 62,000 Deferred tax liability related to revenue recognition 96,000 Deferred tax asset related to litigation accruals 27,000 Indicate how these balances would be presented in Youngman鈥檚 December 31, 2017, balance sheet.
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?
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