FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Related questions
Concept explainers
Question
You are the new controller for Engineered Solutions. The company treasurer, Randy Patey, believes that as a
result of pending legislation, the current 40% income tax rate will be decreased for 2019 to 35% and is uncertain
which tax rate to apply in determining
be included in that determination and has solicited your help. Your accounting group provided you the following
information.
Two items are relevant to the decisions. One is the $50,000 insurance premium the company pays annually
for the CEO’s life insurance policy, for which the company is the beneficiary. The second is that Engineered
Solutions purchased a building on January 1, 2017, for $6,000,000. The building’s estimated useful life is 30
years from the date of purchase, with no salvage value.
for financial reporting purposes and the MACRS method for tax purposes. As a result, the building’s tax basis is
$5,200,000 at December 31, 2018.
Required:
Write a memo to Patey that:
a. Identifies the objectives of accounting for income taxes.
b. Differentiates temporary differences and permanent differences.
c. Explains which tax rate to use.
d. Calculates the
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 2 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Ridley Corporation is in the process of adjusting and correcting its books at the end of 2020. In reviewing its records, the following information was discovered. Prepare the journal entries necessary at December 31, 2020, to record the corrections and changes. The books are still open for 2020. The income tax rate is 40%. The company has not yet recorded its 2020 income tax expense and payable amounts so current-year tax effects may be ignored. Prior-year tax effects must be considered in item 4. 1. The company did not accrue sales commissions payable at the end of each of the last 2 years, as follows. December 31, 2019 $19,000 December 31, 2020 $11,000 2. In reviewing the December 31, 2020, inventory, Ridley discovered errors in its inventory taking procedures that have caused inventories for the last 3 years to be incorrect, as follows. December 31, 2018 December 31, 2019 December 31, 2020 Understated $16,000 Understated $19,000 $ 6,700 Overstated The company has already made an…arrow_forwardNote:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardSunland Services Ltd. follows ASPE and had earned accounting income before taxes of $520,000 for the year ended December 31, 2023. During 2023, Sunland paid $77,000 for meals and entertainment expenses. In 2020, Sunland's tax accountant made a mistake when preparing the company's income tax return. In 2023, Sunland paid $10,500 in penalties related to this error. These penalties were not deductible for tax purposes. Sunland owned a warehouse building for which it had no current use, so the company chose to use the building as a rental property. At the beginning of 2023, Sunland rented the building to Trung Inc. for two years at $64,500 per year. Trung paid the entire two years' rent in advance. Sunland used the straight-line depreciation method for accounting purposes and recorded depreciation expense of $286,200. For tax purposes, Sunland claimed the maximum capital cost allowance of $431,400. This asset had been purchased at the beginning of the year for $3,004,400. In 2023, Sunland…arrow_forward
- Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardI'm having the same problem here with required # 2. I can't figure out where I went wrong, but it keeps saying my calculations are wrong. Please help! Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account. Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 4% of sales. Sales of the awnings in 2020 were $4,000,000. Accordingly, warranty expense and a warranty liability of $160,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 3% of sales rather than 4%. Sales of…arrow_forwardDescribed below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account. Fleming Home Product introduced a new line of commercial awnings in 2020 that carry a one year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 3% of sales. Sales of the awnings in 2020 were $2,700,000. Accordingly, warranty expense and a warranty liability of $81,000 were recorded in 2020, in late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 2% of sales rather than 3%. Sales of the awnings in 2021 were $3,200,000, and warranty expenditures in 2021 totaled $72,800. On December30, 2017, Rival Industries acquired its office building at…arrow_forward
- Determine the effect of the following item on the reconciliation of Net Income for Accounting Purposes to minimum Net Income for Tax Purposes (NIFTP). Additions in reconciliation should be entered in the box as a positive number (write only numbers, do not write "+" sign). Deductions in reconciliation should be entered in the box as a negative number. If the item would have no effect on the reconciliation, enter the number 0 (zero) in the box. Business Meals and Entertainment in the amount of $7,000 were deducted in the calculation of Net Income for Accounting Purposes. Your Answer:arrow_forwardi have completed this in excel but would like to compare my answersarrow_forward[This problem is a variation of P 20-12, modified to consider income tax effects.] Williams-Santana Inc. is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2024, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2024 before any adjusting entries or closing entries were prepared. The income tax rate is 25% for all years. a. A five-year casualty insurance policy was purchased at the beginning of 2022 for $35,000. The full amount was debited to insurance expense at the time. b. Effective January 1, 2024, the company changed the salvage values used in calculating depreciation for its office building. The building cost $600,000 on December 29, 2013, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area…arrow_forward
- During the preparation of financial statement for Master Ltd for 2023 it was discovered thatan amount of $22,000, incurred in September 2021 and payable to an overseas supplier, wasoverlooked and not paid or provided for in the financial statement ending 30 June 2022. Theamount is considered to be material and will be permitted as a deduction for tax purposes(tax rate 30%).Required:i) Prepare the necessary journal entry to correct this error.arrow_forwardDrag and drop the best response into the blank box. Shelley Bowman, CPA, obtained her designation in 2000. Since that time, she has built up a significant tax practice. In late 2021, a new client approached Shelley and asked her to perform an audit engagement. Believing this could lead to a substantial amount of tax work in the future, Shelley agreed, even though she had never completed an audit, nor taken any assurance courses since 1980. Violation of Competence No violation of the Rules of Professional Conduct Violation of Independence - self-interest Violation of the Charter of Conduct Violation of Independence - familiarity Violation of Independence - self reviewarrow_forwardYou are in the tax department at a large public accounting firm and you are working with your new client, Big Corporation. Big Corporation prepares their financial statements (Book Income) based on US Generally Accepted Accounting Principles (GAAP). The Controller is very familiar with GAAP accounting but is unsure about this need to adjust Book Income to Taxable Income and wants to understand it better. You have already identified five questions that the Controller has concerning these Book to Tax Differences from your first meeting. You are planning to meet again with the Controller to discuss those listed five items identified below, Items 1 to 5. For that upcoming meeting, please write in a paragraph or so for each item (i.e. 1, 2, 3, 4 and 5) so you can be prepared to verbally discuss with the Controller each item. There is no need for any references to tax law and do not worry about grammar or spelling since this will be your notes only for the upcoming discussion and the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education