Part A -
SuperSports Inc. reported pretax financial income of $260,000 for the year 2016. Taxable income of SuperSports is however different from its pretax financial income because of the items given below.
- Depreciation deducted on the tax return is $40,000 greater than the depreciation charged on Income Statement.
- Estimated Warranties Expenses charged to Income Statement is $30,000 but Warranties expenses deductible on tax return are $20,000
- $3,200 appear in the income statement of SuperSports as Fines and penalties paid.
- SuperSports received $ 6,000 interest from Tax Saving Municipal Bonds.
Enacted Tax Rate for the year 2016 is 30% and for 2017 is 35%
Required:
1. Identify items of permanent and temporary difference from the information given
2. What items of temporary difference result in future taxable amounts and what items will result in future deductible amounts
3. Compute Taxable Income
4. Compute current income tax expense/Tax payable
5. Compute deferred taxes ( Deferred Tax Liability and Deferred Tax Asset)
6. Record journal entry for Income Tax Expense
7. Show how deferred taxes will be reported in the Balance Sheet.
Part B -
SuperSports provides you the following pension data for the year 2016.
Service Cost, 2016 $248,000
Projected Benefit Obligation, January 2016 $340,000
Plan assets (fair value), Januray 1, 2016 $360,000
Prior Service Cost - AOCI (2016 amortization, $25,000) $250,000
Net Loss - AOCI (2016 amortization, $10,000) $110,000
Actual Return on Plan Assets $45,000
Interest rate and expected return on plan assets 10%
Contributions made to plan assets during 2016 $175,000
Required:
1. Compute pension expense for the year 2016.
2. Record 2016 journal entry for pension expense.