ABC Corp calculated that it had sustained a deferred tax asset of $450,000 in respect of a tax loss and deductible temporary difference of $2.25 million but it had not recognised any such asset in the balance sheet. During the year, a business was injected to the company by the major shareholder and the company began to derive taxable profit to offset with the loss brought forward. Required: 1. Discuss the implication of the current development on ABC’s deferred tax asset. 2. Suggest journal entries to effect the implication in (1). 3. If the tax rate is increased to 30%, discuss and suggest journal entries.

ABC Corp calculated that it had sustained a deferred tax asset of $450,000 in respect of a tax loss and deductible temporary difference of $2.25 million but it had not recognised any such asset in the balance sheet. During the year, a business was injected to the company by the major shareholder and the company began to derive taxable profit to offset with the loss brought forward. Required: 1. Discuss the implication of the current development on ABC’s deferred tax asset. 2. Suggest journal entries to effect the implication in (1). 3. If the tax rate is increased to 30%, discuss and suggest journal entries.

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter17: Corporations: Introduction And Operating Rules

Section: Chapter Questions

Problem 16DQ

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ABC Corp calculated that it had sustained a deferred tax asset of $450,000 in respect of a tax loss and deductible temporary difference of $2.25 million but it had not recognized any such asset in the balance sheet. During the year, a business was injected to the company by the major shareholder and the company began to derive taxable profit to offset with the loss brought forward. Required: Discuss the implication of the current development on ABC’s deferred tax asset. Suggest journal entries to effect the implication in (1). If the tax rate is increased to 30%, discuss and suggest journal entries.
Jin Company’s income tax return showed taxable income of P4,000,000 on which a tax liability of P1,200,000 has been recognized. Additional information are as follows: * Accelerated depreciation for income tax purposes was P500,000. Straight-line financial depreciation on the assets is P400,000. * Goodwill impairment loss of P300,000 was not included as a deduction in the tax return but may be deducted in the income statement. * Interest income on treasury bills was not included in the tax return.During the year, P600,000 was received on these investments. What is the pretax financial income of Jin? a. P4,100,000 b. P4,200,000 c. P4,300,000 d. P4,400,000
Lanzones Corp. began operations at the beginning of the current year. At the end of the first year of operations, the entity reported P6,000,000 income before income tax in the income statement but only P5,100,000 taxable income in the tax return. Analysis of the P900,000 difference revealed that P500,000 was a permanent difference and P400,000 was a temporary tax liability difference related to a current asset. The tax rate for the current year and future years is 30%. Required: 1. What is the accounting or financial income subject to tax?2. The total income tax expense for the current year is?3. How much is the pretax financial income?
For the events described below, select the taxrelated term from the following list that best applies: gross income, depreciation, operating expense, taxable income, income tax, or net operating profit after taxes. (a) A corporation reports that it had a negative $1,750,000 net profit on its annual income statement. (b) An asset with a current book value of $120,000 was utilized on a new processing line to increase sales by $200,000 this year. (c) A machine has an annual write-off of $21,000. (d ) The cost to maintain quality assurance equipment during the past year was $75,000. (e) A supermarket collected $24,000 in lottery ticket sales last year. Based on the winnings paid to individuals holding these tickets, a rebate of $250 was sent to the store manager. ( f ) An asset with a book value of $8000 was retired and sold for $8450. (g) The cost of goods sold in the past year was $3,680,200. (h) An over-the-counter software system will generate $420,000 in revenue this quarter
Required information [The following information applies to the questions displayed below.] Hafnaoui Company reported pretax net income from continuing operations of $1,136,000 and taxable income of $678,500. The book-tax difference of $457,500 was due to a $305,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $122,000 due to an increase in the reserve for bad debts, and a $274,500 favorable permanent difference from the receipt of life insurance proceeds. At the end of the year, the reserve for bad debts had a balance of $152,500, the beginning balance in the account was $30,500. Hafnaoul's beginning book (tax) basis in its fixed assets was $1,042,000 ($863,000) and its ending book (tax) basis is $1,605,000 ($1,121,000). b. Compute Hafnaoul Company's deferred income tax expense or benefit. N Enter all numbers as a positive number and indicate whether a deferred tax expense or a deferred tax benefit. Deferred income tax expense
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In its first year, Firm KZ recognized $427,300 ordinary business income and a $13,590 loss on the sale of an investment asset. In its second year, Firm KZ recognized $500,800 ordinary business income, a $19,300 Section 1231 gain, and a $7,400 Section 1231 loss on two sales of operating assets. * I only need Requirement D to be solved. Required: d. Compute KZ's deferred tax asset or liability (identify which) on its balance sheet on the last day of the second year.
The information below pertains to Mondavi Corporation: (a.) For the current year temporary differences existed between the financial statement carrying amounts and the tax basis of the following: Future Taxable or Carrying Amount (Deductible) Amount Tax Basis Buildings and equipment Prepaid insurance Liability-loss contingency $61,000, 000 $45,900, 000 $ 15,100,000 1,100,000 1,100,000 10, 100,000 (10,100,000) (b.) No temporary differences existed at the beginning of the year. (c.) Pretax accounting income was $310,000,000 and taxable income was $121,000,000 for the year and the tax rate is 30%. Required: Prepare one journal entry to record the tax provision for the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 1 > Record the income taxes. Note: Enter debits before credits. Transaction General Journal Debit Credit 1
This year, PRS Corporation generated $300,000 income from the performance ofconsulting services for its clients. It sold two assets during the year, recognizing a$36,000 gain on the first sale and a $49,000 loss on the second sale. Compute PRS’staxable income assuming that:Required:a.Both the gain and the loss were capital.b. Both the gain and the loss were ordinary.c. The gain was ordinary, and the loss was capital.d. The gain was capital, and the loss was ordinary.
Cadillac Square Corporation determined that $1,128,800 of its research tax credit on its current-year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made the following assessment of the company's potential tax benefit from the deduction and its probability of occurring. Individual Cumulative Potential Estimated Benefit (000s) $1,128,800 $ 964,500 $ 233,250 0 Probability of Probability of Occurring (%) Occurring (%) 47 30 15 8 Tax benefit amount recognized 47 77 92 100 What amount of the tax benefit related to the uncertain tax position from the research tax credit can Cadillac Square Corporation recognize in calculating its income tax provision in the current year?
17 The information below pertains to Mondavi Corporation: (a.) For the current year temporary differences existed between the financial statement carrying amounts and the tax basis of the following: Buildings and equipment Prepaid insurance Liability-loss. contingency View transaction list Carrying Amount Tax Basis $58,000,000 $43,200,000 2,200,000 11,200,000 (b.) No temporary differences existed at the beginning of the year. (c.) Pretax accounting income was $280,000,000 and taxable income was $118,000,000 for the year and the tax rate is 35%. Permanent differences are the cause of any difference between pretax accounting income and taxable income that are not due to temporary differences. Journal entry worksheet 1 Required: Prepare the journal entry to record the tax provision for the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Record the income taxes. 0 0 Note: Enter debits before credits Future…
identify the tax issue(s) posed by the facts presented.Determine the possible tax consequences of each issue that you identify. Myrtle Coast Corporation has a $35,000 operating loss during the currentyear. Not included in the loss is a $40,000 dividend it received from acorporation in which it owns a 15 percent interest.