Valuation E19-5 Account At the end of 2010, its first year of operations, the Beattie Company reported taxable income of $38,000 and pretax financial income of $34,400. The difference is due to the way the company handles its warranty costs. For tax purposes, the company deducts the warranty costs as they are paid. For financial reporting purposes, the company provides provides for a year-end estimated warranty liability based on future expected costs. The company is subject to a 30% tax rate for 2010 and no change in the tax rate has been enacted for future years. Based on verifiable evidence, the company decides it should establish a valuation allowance of 60% of its ending deferred tax asset. Required 1. Prepare the income tax journal entry of the Beattie Company at the end of 2010. 2. Prepare the lower portion of the Beattie Company's 2010 income statement.
E19-5 Valuation Account
Name:
Krishna Panday
An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Required 1. Prepare the income tax journal entry of the Beattie Company at the end of 2010. December 31, 2010 Income Tax Expense Deferred Tax Asset Income Taxes Payable December 31, 2010 Income Tax Expense Allowance to Reduce Deferred Tax Asset 648 648 10,320 1,080 11,400
2. Prepare the lower portion of the Beattie Company's 2010 income statement.
Income before income taxes Income tax expense Net Income
$34,400 (10,968) $23,432
E19-5 Valuation Account
Name:
Solutions
An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Required 1. Prepare the income tax journal entry of the Beattie Company at the end of 2010. December 31, 2010 Income Tax Expense Deferred Tax Asset Income Taxes Payable December 31, 2010 Income Tax Expense Allowance to Reduce Deferred Tax Asset 648 648 10,320 1,080 11,400
2. Prepare the lower portion of the Beattie Company's 2010 income statement.
Income before income taxes Income tax expense Net Income
$34,400 (10,968) $23,432
E19-8 Multiple Temporary Differences Vickers Company reports taxable income of $4,500 for 2010. The company has two temporary differences between pretax financial income and taxable income at the end of 2010. The first difference is expected to result in taxable amounts totaling $2,470 in future years. The second difference is expected to result in deductible amounts totaling $1,360 in future years. The company has a deferred tax asset of $372 and a deferred tax liability of $690 at the beginning of 2010. The current tax rate is 30% and no change in the tax rate has been enacted for future years. The company has positive, verifiable evidence of future taxable income. Required Prepare the income tax journal entry of the Vickers Company at the end of 2010.
E19-8 Multiple Temporary Differences
Name:
Krishna Panday
An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Required Prepare the income tax journal entry of the Vickers Company at the end of 2010. December 31, 2010 Income Tax Expense Deferred Tax Asset Income Taxes Payable Deferred Tax Liability 1,365 36 1,350 51
E19-8 Multiple Temporary Differences
Name:
Solutions
An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Required Prepare the income tax journal entry of the Vickers Company at the end of 2010. December 31, 2010 Income Tax Expense Deferred Tax Asset Income Taxes Payable Deferred Tax Liability 1,365 36 1,350 51
E19-9 Operating Loss At the end of 2010, Keil Company reports a pretax operating loss of $80,000 for both financial reporting and income tax purposes. Prior to 2010 the company had been successful and had reported and paid taxes on the following pretax financial income and taxable income: 2007, $37,000; 2008, $50,000; and 2009, $54,000. The company had been subject to tax rates of 20% in 2007, 25% in 2008, and 30% in 2009. Required 1. Prepare the income tax journal entry of the Keil Company at the end of 2010. 2. Prepare the lower portion of Keil's 2010 income statement.
E19-9 Operating Loss
Name:
Krishna Panday
An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Required 1. Prepare the income tax journal entry of the Keil Company at the end of 2010. December 31, 2010 Income Tax Refund Receivable Income Tax Benefit From Operating Loss Carryback 21,500 21,500
2. Prepare the lower portion of Keil's 2010 income statement.
Pretax operating loss Less: Income tax benefit from operating loss carryback Net Loss
$(80,000) 21,500 $(58,500)
E19-9 Operating Loss
Name:
Solutions
An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Required 1. Prepare the income tax journal entry of the Keil Company at the end of 2010. December 31, 2010 Income Tax Refund Receivable Income Tax Benefit From Operating Loss Carryback 21,500 21,500
2. Prepare the lower portion of Keil's 2010 income statement.
Pretax operating loss Less: Income tax benefit from operating loss carryback Net Loss
$(80,000) 21,500 $(58,500)
P19-13 Comprehensive Colt Company reports pretax financial "income" of $143,000 in 2010. In addition to pretax income from continuing operations (of which revenues are $295,000), the following items are included in this pretax "income": Extraordinary gain Loss from disposal of Division B Income from operations of discontinued Division B Prior period adjustment $30,000 (10,000) 16,000 (8,000)
The taxable income of the company totals $123,000 in 2010. The difference between the pretax financial and income the taxable income is due to the excess of tax depreciation over financial depreciation on assets used in continuing operations. At the beginning of 2010, the company had a retained earnings balance of $310,000 and a deferred tax liability of $8,100. During 2010, the company declared and paid dividends of $48,000. It is subject to tax rates of 15% on the first $50,000 of income and 30% on income in excess of $50,000. Based on proper interperiod tax allocation procedures, the company has determined that its 2010 ending deferred tax liability is $14,100. Required 1. Prepare a schedule for the Colt Company to allocate the total 2010 income tax expense to the various components of pretax income. 2. Prepare the income tax journal entry of the Colt Company at the end of 2010. 3. Prepare Colt Company's 2010 income statement. 4. Prepare Colt Company's 2010 statement of retained earnings. 5. Show the related income tax disclosures on the Colt Company's December 31, 2010 balance sheet.
P19-13 Comprehensive An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Required 1. Prepare a schedule for the Colt Company to allocate the total 2010 income tax expense to the various components of pretax income. COLT COMPANY Schedule of Income Tax Expense For Year Ended December 31, 2010 Income Pretax Amount $50,000 65,000 (10,000) 16,000 30,000 (8,000) $143,000 (30,000) (16,000) $97,000 10,000 8,000 $115,000
Name:
Krishna Panday
Component (Pretax) Income from continuing operations (1st portion) Income from continuing operations (2nd portion) Loss from disposal of Division B Income from operations of discontinued Division B Extraordinary gain Prior period adjustment
Tax Rate 15% 30% 30% 30% 30% 30%
Income Tax Expense (Credit) $7,500 19,500 (3,000) 4,800 9,000 (2,400) $35,400
Total pretax accounting "income" Less: Extraordinary gain Income from operations of discontinued Division B Add: Loss on disposal of Division B Prior period adjustment Pretax income from continuing operations
2. Prepare the income tax journal entry of the Colt Company at the end of 2010.
Income Tax Expense Income from Operations of Discontinued Division B Extraordinary Gain Loss from Disposal of Division B Retained Earnings (prior period adjustment) Deferred Tax Liability Income Taxes Payable
27,000 4,800 9,000 3,000 2,400 6,000 29,400
3. Prepare Colt Company's 2010 income statement.
COLT COMPANY Income Statement For Year Ended December 31, 2010 Revenues Expenses Pretax income from continuing operations Income tax expense Income from continuing operations Results of discontinued operations: Income from operation of discontinued Division B (net of $4,800 income taxes) Loss from disposal of Division B (net of $3,000 income tax credit) Income before extraordinary gain Extraordinary gain (net of $9,000 income taxes) Net Income $295,000 (180,000) $115,000 (27,000) $88,000 $11,200 (7,000) 4,200 $92,200 21,000 $113,200
4. Prepare Colt Company's 2010 statement of retained earnings.
COLT COMPANY Statement of Retained Earnings For Year Ended December 31, 2010 Retained earnings, January 1, 2010 Less: Prior period adjustment (net of $2,400 income tax credit) Adjusted retained earnings, January 1, 2010 Add: Net Income Less: Cash Dividends Retained earnings, December 31, 2010 310,000 (5,600) 304,400 113,200 417,600 (48,000) 369,600
5. Show the related income tax disclosures on the Colt Company's December 31, 2010 balance sheet.
COLT COMPANY Partial Balance Sheet December 31, 2010 Current Liabilities Income taxes payable Noncurrent Liabilities Deferred tax liability
$31,500 $14,100
P19-13 Comprehensive An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Required 1. Prepare a schedule for the Colt Company to allocate the total 2010 income tax expense to the various components of pretax income. COLT COMPANY Schedule of Income Tax Expense For Year Ended December 31, 2010 Income Pretax Amount $50,000 65,000 (10,000) 16,000 30,000 (8,000) $143,000 (30,000) (16,000) $97,000 10,000 8,000 $115,000
Name:
Solutions
Component (Pretax) Income from continuing operations (1st portion) Income from continuing operations (2nd portion) Loss from disposal of Division B Income from operations of discontinued Division B Extraordinary gain Prior period adjustment
Tax Rate 15% 30% 30% 30% 30% 30%
Income Tax Expense (Credit) $7,500 19,500 (3,000) 4,800 9,000 (2,400) $35,400
Total pretax accounting "income" Less: Extraordinary gain Income from operations of discontinued Division B Add: Loss on disposal of Division B Prior period adjustment Pretax income from continuing operations
2. Prepare the income tax journal entry of the Colt Company at the end of 2010.
Income Tax Expense Income from Operations of Discontinued Division B Extraordinary Gain Loss from Disposal of Division B Retained Earnings (prior period adjustment) Deferred Tax Liability Income Taxes Payable
27,000 4,800 9,000 3,000 2,400 6,000 29,400
3. Prepare Colt Company's 2010 income statement.
COLT COMPANY Income Statement For Year Ended December 31, 2010 Revenues Expenses Pretax income from continuing operations Income tax expense Income from continuing operations Results of discontinued operations: Income from operation of discontinued Division B (net of $4,800 income taxes) Loss from disposal of Division B (net of $3,000 income tax credit) Income before extraordinary gain Extraordinary gain (net of $9,000 income taxes) Net Income $295,000 (180,000) $115,000 (27,000) $88,000 $11,200 (7,000) 4,200 $92,200 21,000 $113,200
4. Prepare Colt Company's 2010 statement of retained earnings.
COLT COMPANY Statement of Retained Earnings For Year Ended December 31, 2010 Retained earnings, January 1, 2010 Less: Prior period adjustment (net of $2,400 income tax credit) Adjusted retained earnings, January 1, 2010 Add: Net Income Less: Cash Dividends Retained earnings, December 31, 2010 310,000 (5,600) 304,400 113,200 417,600 (48,000) 369,600
5. Show the related income tax disclosures on the Colt Company's December 31, 2010 balance sheet.
COLT COMPANY Partial Balance Sheet December 31, 2010 Current Liabilities Income taxes payable Noncurrent Liabilities Deferred tax liability
$31,500 $14,100