- Identify how each security should be accounted for (Trading, Available-for-Sale, Held-to-Maturity or Equity Method).
- At what amount would you report each security on the Balance Sheet as of December 31, 2013?
- What is the amount of unrealized holding gain or loss for each security (if applicable) and in which account (Equity or Income) would you record the unrealized holding gain/loss for each applicable one?
- Prepare the journal entries for the Equity Method transaction(s).
- Prepare the journal entries to record any realized gains or losses on the sale of securities. Ignore any reclassification adjustments, if applicable.
Problem - Deferred Taxes
Kramer Corporation began operations during 2012. Other information provided by Kramer for 2012 and 2013 are as follows:
2012:
Depreciation costs are written off for income tax purposes on a different basis from that used for accounting purposes, resulting in a $60,000 additional expense for tax purposes as compared to accounting purposes that will reverses at an equal amount per year for each of the next three years.
2013:
- The depreciation difference from 2012 reverses as expected.
- Kramer collected $45,000 for rent under operating leases that will be earned equally during 2013, 2014, and 2015.
- Penalties incurred amounted to $3,000, but they will not be paid until 2014.
- Entertainment expenses reported on the income statement totaled $4,000. The amount allowed for tax purposes is 50 percent.
- Kramer accrued interest revenue of $5,000 on municipal bonds. Interest will be received during 2014.
- The enacted tax rates are 26 percent for 2012, 30 percent for 2013, 35 percent for 2014, and 32 percent for 2015 and thereafter.
Instructions:
- Determine the amounts that will be reported on the December 31, 2013, balance sheet as deferred tax assets or liabilities for each item given.
- Which items will produce permanent differences? On which side (books or tax) will these be reflected?