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Week 3 In-class exercises

Week 3 In-class exercises - 1 PROBLEM191(a X.40...

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Week 3 In class exercises 1 PROBLEM 19-1 (a) X(.40) = \$360,000 taxes due for 2006 X = \$360,000 ÷ .40 X = \$900,000 taxable income for 2006 (b) Taxable income [from part (a)] \$900,000 Excess depreciation 100,000 Municipal interest 10,000 Unearned rent (40,000 ) Pretax financial income for 2006 \$970,000 (c) 2006 Income Tax Expense .............................................. 381,000 Deferred Tax Asset (\$40,000 X .35) ....................... 14,000 Income Tax Payable (\$900,000 X .40) ........... 360,000 Deferred Tax Liability (\$100,000 X .35) ......... 35,000 2007 Income Tax Expense .............................................. 341,250 Deferred Tax Liability ............................................. 8,750 [(\$100,000 ÷ 4) X .35] Income Tax Payable ........................................ 343,000 (\$980,000 X .35) Deferred Tax Asset ......................................... 7,000 [(\$40,000 ÷ 2) X .35] (d) Income before income taxes \$970,000 Income tax expense Current \$360,000 Deferred (\$35,000 – \$14,000) 21,000 381,000

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Week 3 In class exercises 2 Net income \$589,000
Week 3 In class exercises 3 PROBLEM 19-5 (a) 2006 Income Tax Refund Receivable ................................. 50,000 [(\$60,000 X 30%) + (\$80,000 X 40%)] Benefit Due to Loss Carryback .......................... 50,000 Deferred Tax Asset ...................................................... 24,000 Benefit Due to Loss Carryforward ..................... 24,000 (\$200,000 – \$60,000 – \$80,000 = \$60,000) (\$60,000 X 40% = \$24,000) 2007 Income Tax Expense ................................................... 28,000 Deferred Tax Asset .............................................. 24,000 Income Tax Payable ............................................ 4,000 [(\$70,000 – \$60,000) X 40%] 2008 Income Tax Expense ................................................... 31,500 Income Tax Payable (\$90,000 X 35%) ................ 31,500 (b) The income tax refund receivable account totaling \$50,000 will be reported under current assets on the balance sheet at December 31, 2006. This type of receivable is usually listed immediately above inven-tory in the current assets section. This receivable is normally collectible within two months of filing the amended tax returns reflecting the carryback. A deferred tax asset of \$24,000 should also be classified as a current asset because the benefits of the loss carryforward are ex-pected to be realized in the year that immediately follows the loss year which means the benefits are expected

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Week 3 In class exercises 4 to be realized in 2007. A current deferred tax asset is usually
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