Chapter 19 solutions to long problems

Chapter 19 solutions to long problems - PROBLEM 19-1 (a) X...

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Unformatted text preview: 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 0.35).............................................. 14,000 Income Tax Payable ($900,000 X 0.40)................................ 360,000 Deferred Tax Liability ($100,000 X 0.35)............................. 35,000 2007 Income Tax Expense........................................................................ 341,250 Deferred Tax Liability..................................................................... 8,750 [($100,000 4) X 0.35] Income Tax Payable............................................................... 343,000 ($980,000 X 0.35) Deferred Tax Asset................................................................ 7,000 [($40,000 2) X 0.35] (d) Income before income taxes $970,000 Income tax expense Current $360,000 Deferred ($35,000 $14,000) 21,000 381,000 Net income $589,000 PROBLEM 19-2 (a) Before deferred taxes can be computed, the amount of temporary difference originating (reversing) each period and the resulting cumulative temporary difference at each year-end must be computed: 2007 2008 2009 2010 Pretax financial income $280,000 $320,000 $350,000 ( $ ( 420,000 Nondeductible expense 30,000 30,000 30,000 ( 30,000 ) Subtotal 310,000 350,000 380,000 ( ( 450,000 Taxable income 180,000 225,000 270,000 ( 580,000 Temporary difference originating (reversing) $130,000 $125,000 $110,000 ( $(130,000 ) Cumulative Temporary Difference At End of Year 2007 $130,000 2008 $255,000 ($130,000 + $125,000) 2009 $365,000 ($255,000 + $110,000) 2010 $235,000 ($365,000 $130,000) Because the temporary difference causes pretax financial income to exceed taxable income in the period it originates, the temporary difference will cause future taxable amounts. Taxable income for 2007 $180,000 Enacted tax rate for 2007 35% Current tax expense for 2007 (Income tax payable) $ 63,000 2007 Income Tax Expense............................................................................ 108,500 Income Tax Payable................................................................... 63,000 Deferred Tax Liability............................................................... 45,500 PROBLEM 19-2 (Continued) The deferred taxes at the end of 2007 would be computed as follows: Temporary Difference Future Taxable (Deductible) Amounts Tax Rate Deferred Tax (Asset) Liability Depreciation $130,000 35% $45,500 Deferred tax liability at the end of 2007 $45,500 Deferred tax liability at the beginning of 2007 0 Deferred tax expense for 2007 (increase in deferred tax liability) $45,500 Deferred tax expense for 2007 $ 45,500 Current tax expense for 2007 63,000 Income tax expense for 2007...
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This note was uploaded on 10/07/2010 for the course ACC 5115 taught by Professor Mitra during the Spring '10 term at Wayne State University.

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Chapter 19 solutions to long problems - PROBLEM 19-1 (a) X...

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