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(Two Differences, One Rate, Beginning Deferred Balance, Compute Pretax Financial Income) 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
Instructions
(a) Determine the
(b) Indicate how the deferred taxes computed in (a) are to be reported on the
(c) Assuming that the only deferred tax account at the beginning of 2017 was a
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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- Bramble Corp. purchased depreciable assets costing $550,000 on January 2, 2023. For tax purposes, the company uses CCA in a class that has a 40% rate. Assume these assets are considered "eligible equipment" for purposes of the Accelerated Investment Incentive (under the All, instead of using the half-year rule, companies are allowed a first-year deduction using 1.5 times the standard CCA rate). For financial reporting purposes, the company uses straight-line depreciation over 5 years. The enacted tax rate is 30% for all years. This depreciation difference is the only reversing difference the company has. Assume that Bramble has income before income tax of $345,000 in each of the years 2023 to 2027. Calculate the amount of capital cost allowance and depreciation expense from 2023 to 2027, as well as the corresponding balances for carrying amount and undepreciated capital cost of the depreciable assets at the end of each of the years 2023 to 2027. (Enter negative amounts using either a…arrow_forwardNSync Manufacturing has a deferred tax asset account with a balance of P300,000 at the end of 2015 due to a single cumulative temporary difference of P 750,00. At the end of 2016, this same temporary difference has increased to a cumulative amount of P1,000,000. Taxable income for 2016 is P1,700,000. The tax rate is 40% for 2016, but enacted tax rates for all future years are 35%. Assuming it’s probable that 70% of the deferred tax asset will be realized, what amount will be reported on NSync manufacturing statement of financial position for the deferred tax asset at December 31, 2016arrow_forwardAt the end of 2021, Schrutte Inc. in its first year of operations, had pretax financial income of $650,000. The company had extra depreciation taken for tax purposes in the amount of $975,000. Estimated expenses that were deducted for financial income but not yet paid amounted to $425,000. It is estimated that the expenses will be paid in 2022. The tax rate for all years is 25% In the journal entry at the end of the year that records income tax expense, deferred taxes and income taxes payable, what is the entry to the Income Tax Payable account? Question 19 options: a) credit Income Tax Payable account by $162,500 b) credit Income Tax Payable account by $300,000. c) credit to Income Tax Payable account by $25,000. d) credit Income Tax Payable account by $512,500.arrow_forward
- On January 1, 2018, Ameen Company purchased major pieces of manufacturing equipment for a total of $36 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2020, the book value of the equipment was $30 million and its tax basis was $20 million. At December 31, 2021, the book value of the equipment was $28 million and its tax basis was $12 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2021 was $50 million. Required: 1. Prepare the appropriate journal entry to record Ameen's 2021 income taxes. Assume an income tax rate of 25%. 2. What is Ameen's 2021 net income?arrow_forwardFore Farms reported a pretax operating loss of $204 million for financial reporting purposes in 2024. Contributing to the loss were (a) a penalty of $4 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2024 and (b) an estimated loss of $10 million from accruing a loss contingency. The loss will be tax deductible when paid in 2025. The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2024 other than those described above. Taxable income in Fores’s two previous years of operation was as follows: 2022 $ 92 million 2023 $ 68 million Required: Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2024. Assume Fore will carry back its NOL to prior years. What is the net operating loss reported in 2024 income statement? Prepare the journal entry to record income taxes in 2025 assuming pretax accounting income is $232 million. No…arrow_forwardFore Farms reported a pretax operating loss of $260 million for financial reporting purposes in 2021. Contributing to the loss were (a) a penalty of $8 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2021 and (b) an estimated loss of $20 million from accruing a loss contingency. The loss will be tax deductible when paid in 2022. The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2021 other than those described above. Required:1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2021.2. What is the net operating loss reported in 2021 income statement?3. Prepare the journal entry to record income taxes in 2022 assuming pretax accounting income is $270 million. No additional temporary differences originate in 2022.arrow_forward
- Dogarrow_forwardOn December 31, 2021, the end of the fiscal year, Revolutionary Industries completed the sale of its robotics business for $9 million. The robotics business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $7 million. The income from operations of the segment during 2021 was $4 million. Pretax income from continuing operations for the year totaled $12 million. The income tax rate is 25%. Prepare the lower portion of the 2021 income statement beginning with income from continuing operations before income taxes. Ignore EPS disclosures.arrow_forwardAt the beginning of 2016, Norris Company had a deferred tax liability of $6,600, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2015 and 2016, but in 2015 Congress enacted a 39% tax rate for 2017 and future years. Norris’s accounting records show the following pretax items of financial income for 2016: income from continuing operations, $120,300 (revenues of $351,500 and expenses of $231,200); gain on disposal of Division F, $24,000; loss from operations of discontinued Division F, $11,500; and prior period adjustment, $14,100, due to an error that understated revenue in 2015. All of these items are taxable; however, financial depreciation for 2016 on assets related to continuing operations exceeds tax depreciation by $4,600. Norris had a retained earnings balance of $161,300 on January 1, 2016, and declared and paid cash dividends of $32,800 during 2016. Required: 1.…arrow_forward
- 14) The records for Ehrlich Co. show this data for 2021: Accrued revenue recorded on the books was $480,000. Revenue cash collections was $320,000. Life insurance on officers was $2,800. Fine for pollution violation was $1,000. Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, accelerated depreciation is used and Ehrlich may deduct 15% for 2021. Interest received on tax exempt Florida State bonds was $9,000. The estimated warranty liability related to 2021 sales was $23,000. Repair costs under warranties during 2021 were $12,000. Pretax financial income is $700,000. The tax rate is 25% for this and future years. Instructions (a) Prepare a schedule starting with pretax financial income and compute taxable income. (b) Prepare the journal entry to record income taxes for 2021. (c ) Show the income statement presentation of income tax expense, starting with "income before tax"arrow_forwardFore Farms reported a pretax operating loss of $176 million for financial reporting purposes in 2024. Contributing to the loss were (a) a penalty of $4 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2024 and (b) an estimated loss of $10 million from accruing a loss contingency. The loss will be tax deductible when paid in 2025. The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2024 other than those described above. Taxable income in Fores’s two previous years of operation was as follows: 2022 $ 80 million 2023 $ 56 million Prepare the journal entry to record income taxes in 2025 assuming pretax accounting income is $208 million. No additional temporary differences originate in 2025.arrow_forwardThe whole question is as follows: At the beginning of 2016, Norris Company had a deferred tax liability of $6,600, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2015 and 2016, but in 2015 Congress enacted a 39% tax rate for 2017 and future years. Norris’s accounting records show the following pretax items of financial income for 2016: income from continuing operations, $120,300 (revenues of $351,500 and expenses of $231,200); gain on disposal of Division F, $24,000; loss from operations of discontinued Division F, $11,500; and prior period adjustment, $14,100, due to an error that understated revenue in 2015. All of these items are taxable; however, financial depreciation for 2016 on assets related to continuing operations exceeds tax depreciation by $4,600. Norris had a retained earnings balance of $161,300 on January 1, 2016, and declared and paid cash dividends of $32,800…arrow_forward
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