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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
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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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