PS_10_Solution_(F2009)

PS_10_Solution_(F2009) - FINANCIAL ACCOUNTING BUSI W3013 |...

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F INANCIAL A CCOUNTING BUSI W3013 | F ALL 2009 S OLUTION TO P ROBLEM S ET 10 P ROFESSOR A NDREW S CHMIDT I. KLS, INC. Taxable income: Book income 3,000 Goodwill impairment 100 Bad debt expense 50 Write-offs (30) Depreciation expense 200 Depreciation deduction (300) Warranty expense 40 Warranty deduction (50) Taxable income 3,010 Current portion of the income tax expense: Taxable income 3,010 Tax rate 30% The current portion of the income tax expense 903 Deferred taxes at the end of the year: Book Tax BTD Deferred tax 1,000 500 500 Liability 150 Net AR 820 900 (80) Asset 24 Goodwill 200 0 200 Permanent difference Warranty liability 40 0 40 Asset 12 So at the end of the year: Deferred tax liability 150 Deferred tax asset 36 Deferred taxes at the beginning of the year: Book Tax BTD Deferred tax 1,200 800 400 Liability 120 Net AR 640 700 (60) Asset 18 Goodwill 300 0 300 Permanent difference Warranty liability 50 0 50 Asset 15 BUSI W3013 Solution to Problem Set 10 | Page 1
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So at the beginning of the year: Deferred tax liability 120 Deferred tax asset 33 Deferred portion of the income tax expense: Increase in the deferred tax liability 30 Increase in the deferred tax asset (3) Deferred portion of the income tax expense 27 The income tax expense: Current portion of the income tax expense 903 Deferred portion of the income tax expense 27 Income tax expense 930 Income taxes paid during the year: BB of Income taxes payable 200 Current portion of the income tax expense 903 EB of Income taxes payable (250) Income taxes paid during the year 853 The effective tax rate: Income tax expense / pretax accounting income = 930 / 3000 = 0.31. Reconciliation of the statutory tax rate with the effective tax rate: Statutory tax rate 30% The effect of goodwill impairment ((100*0.3)/3,000) 1% Effective tax rate 31% BUSI W3013 Solution to Problem Set 10 | Page 2
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The income tax rate was changed to 40%: As a result, at the end of the year: Deferred tax liability 200 Deferred tax asset 48 Thus, Increase in the deferred tax liability 80 Increase in the deferred tax asset (15) Deferred portion of the income tax expense
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PS_10_Solution_(F2009) - FINANCIAL ACCOUNTING BUSI W3013 |...

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