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.
Zurich Company reports pretax financial income of $70,000 for 2014. The following items cause taxable income to be different than pretax financial income.1. Depreciation on the tax return is greater than depreciation on the income statement by $16,000.
2. Rent collected on the tax return is greater than rent earned on the income statement by $22,000.3.Fines for pollution appear as an expense of $11,000 on the income statement.Zurich’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2014.
Compute taxable income and income taxes payable 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 income tax rate for 2014.
Button Company has the following two temporary differences between its income tax expense and income taxes payable.
2014 2015 2016
Pretax financial income$840,000 $910,000 $945,000
Excess depreciation expense on tax return (30,000 (40,000) (10,000)
Excess warranty expense in financial income 20,000 10,000 8,000
Taxable income $830,000 $880,000 $943,000
The income tax rate for all years is 40%. Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2014, 2015, and 2016. Assuming there were no temporary differences prior to 2014, indicate how deferred taxes will be reported on the 2016 balance sheet. Button’s product warranty is for 12 months. Prepare the income tax expense section of the income statement for 2016, beginning with the line “Pretax financial income.
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.
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 2015 2016 2017
Taxable amounts$40,000 $50,000 $60,000 $80,000
Deductible amounts (15,000) (19,000)
$40,000 $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.
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.
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