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Chapter 19: Q11IFRS (page 1115)

Callaway Corp. has a deferred tax asset account with a balance of \(150,000 at the end of 2017 due to a single cumulative temporary difference of \)375,000. At the end of 2018, this same temporary difference has increased to a cumulative amount of \(500,000. Taxable income for 2018 is \)850,000. The tax rate is 40% for all years.

Instructions

(a)Record income tax expense, deferred income taxes, and income taxes payable for 2018, assuming that it is probable that the deferred tax asset will be realized.

(b) Assuming that it is probable that $30,000 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2018 to recognize this probability.

Short Answer

Expert verified

a) Income tax expense is debited $290,000, deferred tax asset is debited by $50,000 and income tax payable is credited by $340,000

b) Income tax expense is debited, and deferred tax asset is credited by $30,000, respectively.

Step by step solution

01

Meaning of Income-tax.

A business's tax responsibility to the government in which it operates is known as "income tax payable."

02

(a) Preparing journal entries.

Date

Particulars

Debit ($)

Credit ($)

Income tax expense

290,000

Deferred tax asset

50,000

Income tax payable

340,000

Working notes:

Calculation of income tax payable

Income鈥�tax鈥�payable=Taxable鈥�income脳Enacted鈥�tax鈥�rate=$850,000脳40%=$340,000

Deferred Tax

Date

Cumulative future taxable (Deductible) amount

Taxrate

(Asset)

Liability

12/31/18

$(500,000)

40%

$(200,000)

Deferred tax asset at the end of 2018
$200,000
Deferred tax asset at the beginning of 2018
150,000
Deferred tax benefit for 2018 (increase in deferred tax asset)
(50,000)
Current tax expense for 2018 (Income taxes payable)
340,000
Income tax expense for 2018
$290,000
03

 Step 3: (b) Preparing journal entries.

Date

Particulars

Debit ($)

Credit ($)

Income Tax Expense

30,000

Deferred Tax Asset

30,000

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Most popular questions from this chapter

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�

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?

How are deferred tax assets and deferred tax liabilities reported on the balance sheet?

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�

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?
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