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ch19 - SOLUTIONS TO B EXERCISES E19-1B(1520 minutes(a...

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SOLUTIONS TO B EXERCISES E19-1B (15–20 minutes) (a) Pretax financial income for 2007 $125,000 Temporary difference resulting in future deductible amounts in 2008 40,000 in 2009 70,000 Taxable income for 2007 $235,000 Taxable income for 2007 $235,000 Enacted tax rate 40% Income tax payable for 2007 $ 94,000 (b) Future Years 2008 2009 Total Future taxable (deductible) amounts $(40,000) $(70,000) $(110,000) Tax rate 40% 40% Deferred tax liability (asset) $(16,000) $(28,000) $ (44,000) Deferred tax asset at the end of 2007 $(44,000) Deferred tax asset at the beginning of 2007 0 Deferred tax expense for 2007 (increase in deferred tax asset) (44,000) Current tax expense for 2007 (Income tax payable) 94,000 Income tax expense for 2007 $50,000 Deferred Tax Asset .................................................... 44,000 Income Tax Expense ................................................. 50,000 Income Tax Payable ........................................... 94,000 (c) Income before income taxes $125,000 Income tax expense Current $94,000 Deferred (44,000) 50,000 Net income $ 75,000 19-1
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E19-2B (15–20 minutes) (a) Pretax financial income for 2007 $160,000 Excess of tax depreciation over book depreciation (80,000) Subscription revenue received in advance 25,000 Taxable income $105,000 (b) Income Tax Expense ................................................ 55,000 Deferred Tax Asset ................................................... 8,750 Income Tax Payable ($105,000 X .35) ............. 35,750 Deferred Tax Liability ....................................... 28,000 Temporary Difference Future Taxable (Deductible) Amounts Tax Rate Deferred Tax (Asset) Liability Depreciation ( $80,000 35% $28,000 Unearned revenue (25,000) 35% $(8,750 ) $(8,750) $28,000 (c) Income Tax Expense ................................................ 91,000* Deferred Tax Liability ($20,000 X .35) ..................... 7,000 Income Tax Payable ($255,000 X .35) ............. 89,250 Deferred Tax Asset ........................................... 8,750 *($89,250 – $7,000 + $8,750) 19-2
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E19-3B (15–20 minutes) (a) Taxable income for 2007 $280,000 Enacted tax rate 40% Income tax payable for 2007 $112,000 (b) Future Years 2008 2009 2010 2011 Total Future taxable (deductible) amounts $75,000 $75,000 $75,000 $75,000 $300,000 Tax rate 40% 40% 40% 40% Deferred tax liability (asset) $30,000 $30,000 $30,000 $30,000 $120,000 Deferred tax liability at the end of 2007 $120,000 Deferred tax liability at the beginning of 2007 80,000 Deferred tax expense for 2007 (increase required in deferred tax liability) 40,000 Current tax expense for 2007 112,000 Income tax expense for 2007 $152,000 Income Tax Expense .......................................... 152,000 Income Tax Payable ................................. 112,000 Deferred Tax Liability .............................. 40,000 19-3
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E19-3B (Continued) (c) Income before income taxes $380,000 Income tax expense Current $112,000 Deferred 40,000 152,000 Net income $228,000 Note: Because of the flat tax rate for all years, the amount of cumulative temporary difference existing at the beginning of the year can be calcu- lated by dividing $80,000 by 40%, which equals $200,000. The difference between the $200,000 cumulative temporary difference at the beginning of 2007 and the $300,000 cumulative temporary difference at the end of 2007 represents the net amount of temporary difference originating during 2007 (which is $100,000). With this information, we can reconcile pretax financial income with taxable income as follows: Pretax financial income $380,000 Temporary difference originating giving rise to net future taxable amounts (100,000 ) Taxable income $280,000 19-4
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E19-4B (15–20 minutes) (a) Pretax financial income for 2007 $260,000 Excess depreciation per tax return (40,000) Excess rent collected over rent earned 65,000 Non-taxable municipal interest (6,500 ) Taxable income $278,500 Taxable income $278,500 Enacted tax rate 40% Income tax payable $111,400 (b) Income Tax Expense ................................................. 101,400 Deferred Tax Asset .................................................... 26,000 Income Tax Payable ........................................... 111,400 Deferred Tax Liability ........................................ 16,000 Temporary Difference Future Taxable (Deductible) Amounts Tax Rate Deferred Tax (Asset) Liability Depreciation ( $40,000 40% $16,000 Unearned rent ( (65,000) 40% $(26,000) Totals $(26,000) $16,000 Deferred tax liability at the end of 2007 $16,000
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