Problem 1:
The following information is available for Wenger Corporation for 2013.
1. Excess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse equally over the years 2014-2017.
2. Deferral, for book purposes, of $20,000 of rent received in advance. The rent will be earned in 2014.
3. Pretax financial income, $300,000.
4. Tax rate for all years, 40%.
Compute taxable income for 2013.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014, assuming taxable income of $325,000.
Problem 2:
The following facts relate to Duncan Corporation.
1. Deferred tax liability, January 1, 2014, $60,000.
2. Deferred tax asset, January 1, 2014, $20,000.
3. Taxable income for 2014, $105,000.
4. Cumulative temporary difference at December 31, 2014, giving rise to future taxable amounts, $230,000.
5. Cumulative temporary difference at December 31, 2014, giving rise to future deductible amounts, $95,000.
6. Tax rate for all years, 40%. No permanent differences exist.
7. The company is expected to operate profitably in the future.
Compute the amount of pretax financial income for 2014.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014.
Prepare the income tax expense section of the income statement for 2014, beginning with the line "Income before income taxes."
Compute the effective tax rate for 2014.
Problem 3:
Nadal Inc. has two temporary differences at the end of 2013. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadal's accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows.
|
2014
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2015
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2016
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2017
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|
Taxable amounts
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$40,000
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$50,000
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$60,000
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$80,000
|
|
Deductible amounts
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|
(15,000)
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(19,000)
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|
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$40,000
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$35,000
|
$41,000
|
$80,000
|
As of the beginning of 2013, the enacted tax rate is 34% for 2013 and 2014, and 38% for 2015-2018. At the beginning of 2013, the company had no deferred income taxes on its balance sheet. Taxable income for 2013 is $500,000. Taxable income is expected in all future years.
As of the beginning of 2013, the enacted tax rate is 34% for 2013 and 2014, and 38% for 2015-2018. At the beginning of 2013, the company had no deferred income taxes on its balance sheet. Taxable income for 2013 is $500,000. Taxable income is expected in all future years.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013.
Indicate how deferred income taxes would be classified on the balance sheet at the end of 2013.