{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

m131bpracticefinalWITHSOLUTIONS

Intermediate Accounting

Info icon This preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
M131B: INTERMEDIATE ACCOUNTING PRACTICE FINAL MARCH 13, 2009 CHAPTER 19 1. Earl Co. at the end of 2007, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 750,000 Estimated expenses deductible for taxes when paid 1,200,000 Extra depreciation (1,350,000 ) Taxable income $ 600,000 Estimated warranty expense of $800,000 will be deductible in 2008, $300,000 in 2009, and $100,000 in 2010. The use of the depreciable assets will result in taxable amounts of $450,000 in each of the next three years. Instructions (a) Prepare a table of future taxable and deductible amounts. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2007, assuming an income tax rate of 40% for all years. SOLUTION (a) 2008 2009 2010 Total Future taxable (deductible) amounts Warranties $(800,000) $(300,000) $(100,000) $(1,200,000) Excess depreciation 450,000 450,000 450,000 1,350,000 (b) Income Tax Expense [$240,000 + ($540,000 – $480,000)] .......... 300,000 Deferred Tax Asset ($1,200,000 × 40%) ...................................... 480,000 Deferred Tax Liability ($1,350,000 × 40%) ....................... 540,000 Income Tax Payable ($600,000 × 40%) ........................... 240,000
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2. The records for Orkin Co. show this data for 2008: Gross profit on installment sales recorded on the books was $360,000. Gross profit from collections of installment receivables was $270,000. Life insurance on officers was $3,800. Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Orkin may deduct 14% for 2008. Interest received on tax exempt Iowa State bonds was $9,000. The estimated warranty liability related to 2008 sales was $19,600. Repair costs under warranties during 2008 were $13,600. The remainder will be incurred in 2009. Pretax financial income is $600,000. The tax rate is 30%. Instructions (a) Prepare a schedule starting with pretax financial income and compute taxable income. (b) Prepare the journal entry to record income taxes for 2008. SOLUTTION (a) Pretax financial income $600,000 Permanent differences Life insurance 3,800 Tax-exempt interest (9,000) Temporary differences Installment sales ($360,000 – $270,000) (90,000) Extra depreciation ($42,000 – $30,000) (12,000) Warranties ($19,600 – $13,600) 6,000 Taxable income $498,800 (b) Income Tax Expense [$149,640 + ($30,600 – $1,800)] ............... 178,440 Deferred Tax Asset (30% × $6,000) ............................................ 1,800 Deferred Tax Liability (30% × $102,000) .......................... 30,600 Income Tax Payable (30% × $498,800) ........................... 149,640
Image of page 2
CHAPTER 21 3. Forbes Company on January 1, 2008, enters into a five-year noncancelable lease, with four renewal options of one year each, for equipment having an estimated useful life of 10 years and a fair value to the lessor, Holt Corp., at the inception of the lease of $3,000,000. Forbes's incremental borrowing rate is 8%. Forbes uses the straight-line
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern