Homework - Ch 16

Homework - Ch 16 - Exercise 16-1 one temp diff, no beg DT...

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Exercise 16-1 one temp diff, no beg DT bals Since taxable income is less than accounting income, a future taxable amount will occur when the temporary difference reverses. This means a deferred tax liability should be recorded to reflect the future tax consequences of the temporary difference. Income tax expense (to balance) 140,000 Deferred tax liability ([$400,000 - 250,000] x 35%) 52,500 Income tax payable ($250,000 x 35%) 87,500 In the current year TI < PTI but in the future TI > PTI due to transactions in current year. GAAP recognized a revenue not recognized for tax in current year, or GAAP recognized less of an expense than recognized for tax in the current year. That is the originating difference. In a future year, that difference reverses. In the future, tax will recognize the revenue or less expense than GAAP. Exercise 16-2 one temp diff, no beg DT bals Income tax expense (to balance) 830,000 Deferred tax asset ($300,000 x 40%) 120,000 Income tax payable (given) 950,000 In the current year the tax on the entire amount of rent received was paid but because 300,000 of rent was not yet earned, no income tax should be recognized on that. The 120,000 tax paid on that 300,000 unearned rent revenue won’t have to be paid in the future when the 300,000 of rent is earned. Hence the asset in the year paid. In the year earned (in future), the DTA is reduced rather than paying tax on the 300,000 because it has already been paid by that time.
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Exercise 16-3 one temp diff, beg DT bal Income tax expense (to balance) 30,035,000 Deferred tax asset ([$1 million x 40%] - $435,000) 35,000 Income tax payable ($75 million x 40%) 30,000,000 The firm has a DTA because it recognizes an estimated expense (bad debt expense) before it is allowed as a deduction for tax. So for example at the end of 2006, the firm has estimated 1 million in bad debt expense (from allowance account) through the balance sheet date. None of that can be deducted yet. But the reduction in income tax expense is taken in the year the bad debt expense is taken. This causes a DTA because the firm gets no deduction ie pays more tax than it otherwise would have to pay. In the future, when the firm obtains the deduction from write offs, no additional expense is taken and the DTA is reduced rather than more taxes being paid. Another way to compute the change in DTA is: End DTA = 1,000,000(.4) = 400,000 = reduction in taxes in the future due to bad debt expense recognized already Beg DTA = 435,000 given Decrease in DTA 35,000
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Exercise 16-6 depreciation over more than one year Requirement 1 Year Total tax deprec Total book dep through through Diff 2005 36 – 20 = 16 36 – 30 = 6 10 2006 36 – 13 = 23 36 – 28 = 8 15 2006 then caused total tax dep to date to exceed total book dep to date by more than the previous year. In other words, the difference is growing. Another way to do this calculation is: At the end of 2005, the diff between the total dep taken for gaap and tax was 10 mil (30 bv – 20 basis). At the end of 2006, the diff between the total dep taken for gaap and tax
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This note was uploaded on 09/27/2008 for the course BUS 1000 taught by Professor Professor during the Spring '08 term at Cal Poly.

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Homework - Ch 16 - Exercise 16-1 one temp diff, no beg DT...

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