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Chapter 19 solutions to long problems

# Chapter 19 solutions to long problems - PROBLEM 19-1(a X.40...

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Unformatted text preview: PROBLEM 19-1 (a) X (.40) = \$360,000 taxes due for 2006 X = \$360,000 Ã· .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 Ã· 4) X 0.35] Income Tax Payable............................................................... 343,000 (\$980,000 X 0.35) Deferred Tax Asset................................................................ 7,000 [(\$40,000 Ã· 2) X 0.35] (d) Income before income taxes \$970,000 Income tax expense Current \$360,000 Deferred (\$35,000 â€“ \$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 â€“ \$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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Chapter 19 solutions to long problems - PROBLEM 19-1(a X.40...

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