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Chapter 19: Q13E. (page 1098)

Assume the same information as E19-12, except that at the end of 2016, Jennifer Capriati Corp. had a valuation account related to its deferred tax asset of $45,000. Instructions (a) Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that the deferred tax asset will be realized in full. (b) Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that none of the deferred tax asset will be realized.

Short Answer

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Income is a term used when an organization earns a certain sum of moneyfrom the sale of its goods and services. The other name for income is revenue.

Step by step solution

01

(a) Journal entry

Date

Particulars

Debit

Credit

2017

Income tax expense

$298,000

Deferred tax asset

[$450,000脳40%-$150,000]

$30,000

Income tax payable

($820,000脳40%)

$328,000

(To record the income tax expense)

02

(b) Recording the journal entry

Date

Particulars

Debit

Credit

2017

Income tax expense

$45,000

Deferred tax asset-valuation adjustment

$45,000

(To record the valuation account)

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Most popular questions from this chapter

Instructions Complete the following statements by filling in the blanks. (a) In a period in which a taxable temporary difference reverses, the reversal will cause taxable income to be _______ (less than, greater than) pretax financial income. (b) If a \(76,000 balance in Deferred Tax Asset was computed by use of a 40% rate, the underlying cumulative temporary difference amounts to \)_______. (c) Deferred taxes ________ (are, are not) recorded to account for permanent differences. (d) If a taxable temporary difference originates in 2017, it will cause taxable income for 2017 to be ________ (less than, greater than) pretax financial income for 2017. (e) If total tax expense is \(50,000 and deferred tax expense is \)65,000, then the current portion of the expense computation is referred to as current tax _______ (expense, benefit) of \(_______. (f) If a corporation鈥檚 tax return shows taxable income of \)100,000 for Year 2 and a tax rate of 40%, how much will appear on the December 31, Year 2, balance sheet for 鈥淚ncome taxes payable鈥� if the company has made estimated tax payments of \(36,500 for Year 2? \)________. (g) An increase in the Deferred Tax Liability account on the balance sheet is recorded by a _______ (debit, credit) to the Income Tax Expense account. (h) An income statement that reports current tax expense of \(82,000 and deferred tax benefit of \)23,000 will report total income tax expense of \(________. (i) A valuation account is needed whenever it is judged to be _______ that a portion of a deferred tax asset _______ (will be, will not be) realized. (j) If the tax return shows total taxes due for the period of \)75,000 but the income statement shows total income tax expense of \(55,000, the difference of \)20,000 is referred to as deferred tax _______ (expense, benefit).

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.

Question: (Three Differences, Classify Deferred Taxes) At December 31, 2016, Belmont Company had a net deferred tax liability of \(375,000. An explanation of the items that compose this balance is as follows

Temporary differences

Resulting balance in deferred taxes

  1. Excess of tax depreciation over book depreciation

\)200,000

  1. Accruals, for book purpose, of estimated loss contingency from pending lawsuit that is expected to be settled in 2017. The loss will be deducted on the tax return when paid

(50,000)

  1. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment

225,000

\(375,000

In analyzing the temporary differences, you find that \)30,000 of the depreciation temporary difference will reverse in 2017, and $120,000 of the temporary difference due to the installment sale will reverse in 2017. The tax rate for all years is 40%.

Instructions

Indicate the manner in which deferred taxes should be presented on Belmont Company鈥檚 December 31, 2016, balance sheet.

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.

Clydesdale Corporation has a cumulative temporary difference related to depreciation of \(580,000 at December 31, 2017. This difference will reverse as follows: 2018, \)42,000; 2019, \(244,000; and 2020, \)294,000. Enacted tax rates are 34% for 2018 and 2019, and 40% for 2020. Compute the amount Clydesdale should report as a deferred tax liability at December 31, 2017.
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