Chapter 16 Day 2-2 - Brief Exercise 1611 Superior should...

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Brief Exercise 16–11 Superior should reduce its deferred tax liability this year by $4.5 million: ($ in millions) Deferred tax liability last year $8.0 ($20 future taxable amt. × 40%) Deferred tax liability this year 3.5 ($10 future taxable amt. × 35%) Reduction needed to achieve desired balance $4.5 Brief Exercise 16–13 Because the net operating loss is less than the previous two years taxable income, AirParts cannot get back all taxes paid those two years. It can reduce taxable income from two years ago by $15 million (to zero) and last year’s taxable income by $10 million and get a refund of $10 million of the taxes paid those years. Journal entry Receivable – income tax refund ($25 million x 40%) 10,000,000 Income tax benefit – operating loss 10,000,000
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Exercise 16–15 Requirement 1 ($ in millions) Current Future Year Deductible 2016 Amounts Total 2017 2018 2019 2020 Pretax accounting income 14 Temporary difference: Warranty expense 6 (2) (1) (1) (2) Taxable income (tax return) 20 Enacted tax rate 35 % 30 % 30 % 30 % 25 % Tax payable currently 7 Deferred tax asset (0.6) (0.3) (0.3) (0.5) (1.7)
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