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deferred_tax_liabilities_solution

deferred_tax_liabilities_solution - 2009 2010 2011 2012...

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Accounting for future taxable amounts – deferred tax liabilities – SOLUTION Jason Company reports profit of $200,000 from installment sales of property in 2009. The gross profit percentage is 20%. Jason uses the accrual method of accounting for financial reporting purposes and the installment (cash) method of accounting for income tax purposes. This is reflected in Jason’s December 31, 2009 balance sheet as follows: GAAP Tax Note receivable $1,000,000 $0 The installment note is recognized for financial accounting purposes in 2009, but will be collected in the following years when the enacted tax rates are: cash gross Year collected profit Tax rate 2010 100,000 20,000 35% 2011 200,000 40,000 30% 2012 300,000 60,000 25% 2013 400,000 80,000 20% 1,000,000 The tax rate for 2009 is 40%. Required : What amount should Jason report as deferred tax liability at December 31, 2009? Also, look at Jason’s books for 2010-2013 if they report pretax financial income of $2,000,000 each year.
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Unformatted text preview: 2009 2010 2011 2012 2013 Total Future taxable amounts 20 40 60 80 200 x Tax rate 35% 30% 25% 20% = Deferred tax liability 7 12 15 16 Deferred tax liability December 31, 2009 $50 All numbers expressed in thousands (000’s omitted) Summary of Jason Company’s Books Deferred Tax Computations [2009-2013] 2009 2010 2011 2012 2013 TOTALS Pretax book income 2,000 2,000 2,000 2,000 2,000 10,000 Less: Originating diff. (200) Add: Reversing diff. 20 40 60 80 = Taxable income 1,800 2,020 2,040 2,060 2,080 10,000 x Tax rate 40% 35% 30% 25% 20% = Income taxes payable 720 707 612 515 416 Jason’s JE Income tax expense 770 700 600 500 400 2,970 Deferred tax liability ( 50 ) 7 12 15 16 Income taxes payable ( 720 ) ( 707 ) ( 612 ) ( 515 ) ( 416 ) (2,970) Debit ( credit ) Jason’s I/S Pretax book income 2,000 2,000 2,000 2,000 2,000 Less: Income tax expense (770) (700) (600) (500) (400) Net income 1,230 1,300 1,400 1,500 1,600 All numbers expressed in thousands (000’s omitted)...
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