Intermediate Accounting: Reporting and Analysis
2nd Edition
ISBN: 9781285453828
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 18, Problem 7E
1.
To determine
Prepare
2.
To determine
Prepare journal entry to record the tax expense, tax payable and deferred tax for the year.
3.
To determine
Elaborate the circumstances that necessitate the utilization of valuation allowance account when deferred tax is recognized and show the manner for reporting the account in financial statements.
4.
To determine
Comment on the answer provided by requirement 2, assuming that Company Z prepares financial statements using IFRS.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
In 2017, Kerry Corp's financial statement showed accrued losses on disposal of unused plant facilities of $3,600,000. The facilities were sold in December 2018 and a $3,600,000 loss was recognized for tax purposes then. Also in 2018, Kerry Corp's paid $150,000 for a two-year life insurance policy for their CEO Kerry, and the company was the beneficiary. Assuming that the enacted tax rate is 35% in both 2017 and 2018. Show the steps for the amount reported on December 31, 2017 as net deferred income taxes on the balance sheet
ABC corp began operations in 2014. The table below contains the company’s taxable income during each year of its operations. Notice that the company lost money in each of its first three years. The corporate tax rate has been 40% each year.
Year Taxable Income
2014 -$700,000
2015 -$500,000
2016 -$300,000
2017 $800,000
2018 $1,000,000
Assume that the company has taken full advantage of the Tax Code’s carry-back, carry-forward provisions, and assume that the current provisions were applicable in 2014. How much did the company pay in taxes during 2018?
$160,000
$176,400
$194,481
$185,220
$120,000
This company began operations in 2014. The table below contains the company’s taxable income during each year of its operations. Notice that the company lost money in each of its first three years. The corporate tax rate has been 40% each year.
Year Taxable Income
2014 -$700,000
2015 -$500,000
2016 -$200,000
2017 $800,000
2018 $1,000,000
Assume that the company has taken full advantage of the Tax Code’s carry-back, carry-forward provisions, and assume that the current provisions were applicable in 2014. How much did the company pay in taxes during 2018?
$185,220
$194,481
$176,400
$160,000
$168,000
Chapter 18 Solutions
Intermediate Accounting: Reporting and Analysis
Ch. 18 - What source is used to determine income tax...Ch. 18 - Prob. 2GICh. 18 - Prob. 3GICh. 18 - Prob. 4GICh. 18 - Prob. 5GICh. 18 - Prob. 6GICh. 18 - What are the three characteristics of a liability,...Ch. 18 - Prob. 8GICh. 18 - When does a corporation establish a valuation...Ch. 18 - List the steps necessary to measure and record a...
Ch. 18 - Prob. 11GICh. 18 - Prob. 12GICh. 18 - Prob. 13GICh. 18 - Prob. 14GICh. 18 - Prob. 15GICh. 18 - Describe an operating loss carryforward. List the...Ch. 18 - Prob. 17GICh. 18 - Prob. 18GICh. 18 - Prob. 19GICh. 18 - Prob. 20GICh. 18 - Prob. 21GICh. 18 - Prob. 22GICh. 18 - Prob. 23GICh. 18 - Prob. 24GICh. 18 - Which of the following is not a cause of a...Ch. 18 - Which of the following is an argument in favor of...Ch. 18 - Prob. 3MCCh. 18 - Prob. 4MCCh. 18 - Prob. 5MCCh. 18 - Prob. 6MCCh. 18 - Prob. 7MCCh. 18 - Prob. 8MCCh. 18 - Prob. 9MCCh. 18 - Which component of current income is not disclosed...Ch. 18 - Parker Company identifies depreciation as the only...Ch. 18 - Refer to RE18-1. Assume that Parkers taxable...Ch. 18 - In the current year, Madison Corporation had...Ch. 18 - Refer to RE18-3. Prepare the additional journal...Ch. 18 - Turnip Company purchased an asset at a cost of...Ch. 18 - Prob. 6RECh. 18 - Compute Radish Companys taxable income given the...Ch. 18 - Prob. 8RECh. 18 - Prob. 9RECh. 18 - Kline Company has the following items of pretax...Ch. 18 - Prob. 11RECh. 18 - Cole Company had a deferred tax liability of 1,000...Ch. 18 - Prob. 1ECh. 18 - Prob. 2ECh. 18 - Prob. 3ECh. 18 - Prob. 4ECh. 18 - Prob. 5ECh. 18 - Prob. 6ECh. 18 - Prob. 7ECh. 18 - Prob. 8ECh. 18 - Prob. 9ECh. 18 - Prob. 10ECh. 18 - Prob. 11ECh. 18 - Temporary and Permanent Differences Lin has just...Ch. 18 - Prob. 13ECh. 18 - Prob. 14ECh. 18 - Prob. 15ECh. 18 - Prob. 16ECh. 18 - Prob. 17ECh. 18 - Prob. 18ECh. 18 - Prob. 19ECh. 18 - Prob. 20ECh. 18 - Uncertain Tax Position At the end of the current...Ch. 18 - Prob. 1PCh. 18 - Temporary and Permanent Differences In the current...Ch. 18 - Prob. 3PCh. 18 - Prob. 4PCh. 18 - Prob. 5PCh. 18 - Prob. 6PCh. 18 - Prob. 7PCh. 18 - Prob. 8PCh. 18 - Prob. 9PCh. 18 - Prob. 10PCh. 18 - Prob. 11PCh. 18 - Prob. 12PCh. 18 - Prob. 13PCh. 18 - Comprehensive At the beginning of 2016, Norris...Ch. 18 - Prob. 15PCh. 18 - Prob. 1CCh. 18 - Prob. 2CCh. 18 - Operating Losses The Internal Revenue Code allows...Ch. 18 - Interperiod and Intraperiod Tax Allocation Income...Ch. 18 - Prob. 5CCh. 18 - Prob. 6CCh. 18 - Permanent and Temporary Differences To implement...Ch. 18 - Prob. 8CCh. 18 - Prob. 9CCh. 18 - Prob. 10C
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
- Fores Construction Company reported a pretax operating loss of $135 million for financial reporting purposes in 2016. Contributing to the loss were (a) a penalty of $5 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2016 and (b) an estimated loss of $10 million from accruing a loss contingency. The loss will be tax deductible when paid in 2017. The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2016 other than those described above. Taxable income in Fores’s two previous years of operation was as follows: 2014 $75 million 2015 $30 million Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2016. Fores elects the carryback option. 2. Show the lower portion of the 2016 income statement that reports the income tax benefit of the net operating loss. 3. Prepare the journal entry to record income taxes in 2017 assuming…arrow_forwardAt the end of 2016, its first year of operations, Slater Company reported a book value for its depreciable assets of $40,000 for financial reporting purposes and $33,000 for income tax purposes. Slater earned taxable income of $97,000 during 2016. The company is subject to a 30% income tax rate, and no change has been enacted for future years. The depreciation was the only temporary difference between taxable income and pretax financial income. Required: 1. Prepare Slater's income tax journal entry at the end of 2016. 2. Show how the deferred taxes would be reported on Slater's December 31, 2016, balance sheet.arrow_forward1. Company ABC reports a loss of $80,000 in 2007. In the past when the firm incurred a loss they first carried the loss back as far as they could to receive a refund from the IRS, and then carry forward the remainder to be used to offset future income. Assume the past seven-years of taxable income are as follows (and further that they are not using the current (new) tax law enacted in November 2017 to account for NOLs): Year Income 2000 $50,000 2001 $30,000 2002 ($40,000) 2003 ($80,000) 2004 $30,000 2005 $50,000 2006 $30,000 Further assume that the current tax rate is 40% and is expected to decrease to 35% in the next period and remain at that rate for the foreseeable future. Finally, ABC is only able provide evidence that they will be able to earn $40,000 in the foreseeable future. What is the amount of the Net Operating Loss (NOL) that ABC will carry forward into the future? What is the DTA that ABC will record related to this NOL? What (if any) journal entry…arrow_forward
- Pito Company has been in operation for several years. During those years, the company has been profitable and it expects to continue to be profitable in the foreseeable future. At the beginning of 2016, Pito has a deferred tax asset of $360 pertaining to one future deductible amount. During 2016, Pito earned taxable income of $51,000 which was taxed at a rate of 30% (no change in the tax rate has been enacted for future years). At the end of 2016, the book value of the current liability to which the deferred tax asset relates for financial reporting purposes exceeded the book value for income tax purposes by $6,000. Required: 1. Prepare Pito's income tax journal entry at the end of 2016. 2. Show how the deferred tax asset is reported on Pito's December 31, 2016, balance sheet.arrow_forwardDuring 2016, its first year of operations, Baginski Steel Corporation reported a net operating loss of $375,000 for financial reporting and tax purposes. The enacted tax rate is 40%. Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss. Assume the weight of available evidence suggests future taxable income sufficient to benefit from future deductible amounts from the net operating loss carryforward. 2. Show the lower portion of the 2016 income statement that reports the income tax benefit of the net operating loss.arrow_forwardHorner Corporation has a deferred tax asset at December 31, 2015 of $80,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted tax rates are as follows: 40% for 2012–2014; 35% for 2015; and 30% for 2016 and thereafter. Assuming that management expects that only 60% of the related benefits will actually be realized, a valuation account should be established in the amount of: a. $80,000 b. $32,000 c. $28,000 d. $24,000arrow_forward
- At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $30 million attributable to a temporary book–tax difference of $75 million in a liability for estimated expenses. At the end of 2016, the temporary difference is $70 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2016 is $180 million and the tax rate is 40%. Required: 1. Prepare the journal entry(s) to record Payne’s income taxes for 2016, assuming it is more likely than not that the deferred tax asset will be realized. 2. Prepare the journal entry(s) to record Payne’s income taxes for 2016, assuming it is more likely than not that one-fourth of the deferred tax asset will ultimately be realized.arrow_forwardHorner Corporation has a deferred tax asset at December 31, 2015 of $80,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted tax rates are as follows: 40% for 2012-2014; 35% for 2015; and 30% for 2016 and thereafter. Assuming that management expects that only 60% of the related benefits will actually be realized, a valuation account should be established in the amount of: a. $80,000 b. $32,000 C. $28,000 d. $24,000 Use the following information for questions 5 and 6. Rowen, Inc. had pre-tax accounting income of $1,672,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions: 4. Received rent from Jane, Co. for 2016 Municipal bond income Depreciation for tax purposes in excess of book depreciation Installment sales revenue to be collected in 2016 5. For 2015, what is the amount of income taxes payable for Rowen, Inc? $603,200 $654,400 $686,400 $772,800 a. b. $64,000 $80,000…arrow_forwardWest Corp. leased a building and received the $36,000 annual rental payment on June 15, 2016. The beginning of the lease was July 1, 2016. Rental income is taxable when received. West’s tax rates are 30% for 2016 and 40% thereafter. West had no other permanent or temporary differences. West determined that no valuation allowance was needed. What amount of deferred tax asset should West report in its December 31, 2016, balance sheet? a. $ 5,400 b. $ 7,200 c. $10,800 d. $14,400arrow_forward
- Bain co. had the following tax information. In 2018 Bain co. suffered a net operating loss of 48,000 which it elected to carry back. The 2018 enacted tax rate is 29%. Prepare the entry to record the effect of the loss carryback.arrow_forwardLyons company deducts insurance expense of P84,000 for tax purposes in 2015, but the expense is not yet recognized for accounting purposes. In 2016, 2017, and 2018, no insurance expense will be deducted for tax purposes, but P28,000 of insurance expense will be deducted for tax purposes, but P28,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons company has a tax rate of 40% and income taxes payable of P72,000 at the end of 2015. There were no deferred taxes at the beginning of 2015. The deferred tax liability at the end of 2015 is?arrow_forwardLance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when the cost is incurred. At December 31, 2016, Lance has a warranty liability of $1 million and taxable income of $75 million. At December 31, 2015, Lance reported a deferred tax asset of $435,000 related to this difference in reporting warranties, its only temporary difference. The enacted tax rate is 40% each year. Required: Prepare the appropriate journal entry to record Lance’s income tax provision for 2016.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Chapter 19 Accounting for Income Taxes Part 1; Author: Vicki Stewart;https://www.youtube.com/watch?v=FMjwcdZhLoE;License: Standard Youtube License