Class_23_Solns - EXERCISE 19-19 (a) (All figures are in...

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EXERCISE 19-19 (a) (All figures are in millions.) Temporary Difference Rate Resulting Deferred Tax Related Balance Sheet Account Classification (Asset) Liability $100 million estimated costs per books 40% $(40) Estimated Payable Current $50 million excess depreciation per tax 40% $20 Plant Assets Noncurrent Totals $(40 ) $20 (b) Current assets Deferred tax asset $40,000,000 Long-term liabilities Deferred tax liability $20,000,000 (c) Income before income taxes $85,000,000 2 Income tax expense Current $64,000,000 1 Deferred (30,000,000 ) 3 34,000,000 4 Net income $51,000,000 1 Taxable income for 2007 $160,000,000 Enacted tax rate 40% Income tax payable for 2007 $ 64,000,000 2 $10,000,000/40% = $25,000,000 cumulative taxable temporary difference at the beginning of 2007. Cumulative taxable temporary difference at the end of 2007 $50,000,000 Cumulative taxable temporary difference at the beginning of 2007 25,000,000 Taxable temporary difference originating during 2007 $25,000,000 1
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Cumulative deductible temporary difference at the end of 2007 $100,000,000 Cumulative deductible temporary difference at the beginning of 2007 0 Deductible temporary difference originating during 2007 $100,000,000 Pretax financial income for 2007 $ X Taxable temporary difference originating (25,000,000) Deductible temporary difference originating 100,000,000 Taxable income for 2007 $160,000,000 Solving for X: X – $25,000,000 + $100,000,000 = $160,000,000 X = $85,000,000 = Pretax financial income 3 Deferred tax liability at the end of 2007 $20,000,000 Deferred tax liability at the beginning of 2007 10,000,000 Deferred tax expense for 2007 (increase in deferred tax liability) $10,000,000 Deferred tax asset at the end of 2007 $ ( 40,000,000 Deferred tax asset at the beginning of 2007 0 Deferred tax benefit for 2007 (increase in deferred tax asset) (40,000,000) Deferred tax expense for 2007 10,000,000 Net deferred tax benefit for 2007 $(30,000,000 ) 4 Net deferred tax benefit for 2007 $(30,000,000) Current tax expense for 2007 (Income tax pay.) 64,000,000 Income tax expense for 2007 $ 34,000,000 2
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EXERCISE 19-20 (a) Income Tax Expense. .................................... 128,800
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This note was uploaded on 10/14/2009 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University.

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Class_23_Solns - EXERCISE 19-19 (a) (All figures are in...

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