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Chapter 19: Question 2BE (page 1093)

Oxford Corporation began operations in 2017 and reported pretax financial income of \(225,000 for the year. Oxford鈥檚 tax depreciation exceeded its book depreciation by \)40,000. Oxford鈥檚 tax rate for 2017 and years thereafter is 30%. In its December 31, 2017, balance sheet, what amount of deferred tax liability should be reported?

Short Answer

Expert verified

Deferred tax liabilityis a term used when an organizationowns a tax amount, but the authority'spayment has not been made yet. It is reputed under thebalance sheet.

Step by step solution

01

Given the amounts as

Particulars

Amount

Pretax financial income

$225,000

Depreciation

$40,000

Tax rate

30%

02

Calculation of deferred tax liability

DeferredTaxLiability=ExcessDepreciation脳TaxRate=$40,000脳30%=$12,000

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Most popular questions from this chapter

(Explain Future Taxable and Deductible Amounts, How Carryback and Carryforward Affects Deferred Taxes) Maria Rodriquez and Lynette Kingston are discussing accounting for income taxes. They are currently studying a schedule of taxable and deductible amounts that will arise in the future as a result of existing temporary differences. The schedule is as follows.

Future Years

2017

2018

2019

2020

2021

Taxable income

\(850,000

Taxable amounts

\)375,000

\(375,000

\)375,000

$375,000

Deductible amounts

(2,400,000)

Enacted tax rate

50%

45%

40%

35%

30%

Instructions

  1. Explain the concept of future taxable amounts and future deductible amounts as illustrated in the schedule.
  2. How do the carryback and carryforward provisions affect the reporting of deferred tax assets and deferred tax liabilities?

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.

Button Company has the following two temporary differences between its income tax expense and income taxes payable2017 2018 2019 Pretax financial income \(840,000 \)910,000 \(945,000 Excess depreciation expense on tax return (30,000) (40,000) (10,000) Excess warranty expense in financial income 20,000 10,000 8,000 Taxable income \)830,000 \(880,000 \)943,000 The income tax rate for all years is 40%. Instructions (a) Assuming there were no temporary differences prior to 2017, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, 2018, and 2019. (b) Indicate how deferred taxes will be reported on the 2019 balance sheet. Button鈥檚 product warranty is for 12 months. (c) Prepare the income tax expense section of the income statement for 2019, beginning with the line 鈥淧retax financial income.鈥�

Explain the meaning of a temporary difference as it relates to deferred tax computations, and give three examples.

Andy McDowell Co. establishes a \(100 million liability at the end of 2017 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2018. Also, at the end of 2017, the company has \)50 million of temporary differences due to excess depreciation for tax purposes, \(7 million of which will reverse in 2018. The enacted tax rate for all years is 40%, and the company pays taxes of \)64 million on \(160 million of taxable income in 2017. McDowell expects to have taxable income in 2018. Instructions (a) Determine the deferred taxes to be reported at the end of 2017. (b) Indicate how the deferred taxes computed in (a) are to be reported on the balance sheet. (c) Assuming that the only deferred tax account at the beginning of 2017 was a deferred tax liability of \)10,000,000, draft the income tax expense portion of the income statement for 2017, beginning with the line 鈥淚ncome before income taxes.鈥� (Hint: You must first compute (1) the amount of temporary difference underlying the beginning $10,000,000 deferred tax liability, then (2) the amount of temporary differences originating or reversing during the year, and then (3) the amount of pretax financial income.)
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