m131bpracticefinalWITHSOLUTIONS

Intermediate Accounting

Info iconThis 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
Background image of page 1

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

View Full DocumentRight 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
Background 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
Background image of page 3

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

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

This document was uploaded on 03/15/2009.

Page1 / 9

m131bpracticefinalWITHSOLUTIONS - M131B: INTERMEDIATE...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online