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405ch192010 - EXERCISE 19-2(1520 minutes(a Pretax financial...

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EXERCISE 19-2 (15–20 minutes) (a) Pretax financial income for 2010 ............................ $350,000 Excess of tax depreciation over book depreciation ................................................. (40,000) Rent received in advance ........................................ 25,000 Taxable income ................................................. $335,000 (b) Income Tax Expense ................................................ 140,000 Deferred Tax Asset ................................................... 10,000* Income Tax Payable ($335,000 X .40) ............. 134,000 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 ( (25,000) 40% $(10,000 ) $(10,000) $16,000 (c) Income Tax Expense ................................................ 136,000* Deferred Tax Liability ($10,000 X .40) ..................... 4,000 Income Tax Payable ($325,000 X .40) ............. 130,000 Deferred Tax Asset ($25,000 X .40) ................. 10,000 *($130,000 – $4,000 + $10,000) EXERCISE 19-5 (15–20 minutes) (a) Taxable income ......................................................... $115,000 Enacted tax rate ......................................................... 40% Income tax payable ................................................... $ 46,000 (b) Income Tax Expense ................................................. 80,000 Deferred Tax Asset .................................................... 14,000
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Income Tax Payable ........................................... 46,000 Deferred Tax Liability ........................................ 48,000 Temporary Difference Future Taxable (Deductible) Amounts Tax Rate Deferred Tax (Asset) Liability First one ( $220,000 40% $88,000 Second one ( (35,000 ) 40% $(14,000 ) Totals $185,000 $(14,000 ) $88,000 *Because of a flat tax rate, these totals can be reconciled: $185,000 X 40% = $(14,000) + $88,000. Deferred tax liability at the end of 2010 ................................. $ 88,000 Deferred tax liability at the beginning of 2010 ...................... 40,000 Deferred tax expense for 2010 (increase required in deferred tax liability) ........................................ $ 48,000 Deferred tax asset at the end of 2010 .................................... $ ( 14,000 Deferred tax asset at the beginning of 2010 ......................... 0 Deferred tax benefit for 2010 (increase required in deferred tax asset) ........................................... $(14,000 ) Deferred tax expense for 2010 ............................................... $ 48,000 Deferred tax benefit for 2010 .................................................. (14,000 ) Net deferred tax benefit for 2010 ............................................ 34,000 Current tax expense for 2010 (Income tax payable) ............ 46,000 Income tax expense for 2010 .................................................. $ 80,000
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(c) Income before income taxes ................................. $200,000 Income tax expense Current ............................................................. $46,000 Deferred ........................................................... 34,000 80,000 Net income ............................................................... $120,000 Note : The details on the current/deferred tax expense can be disclosed in the notes to the financial statements.
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EXERCISE 19-5 (Continued) Note to instructor : Because of the flat tax rate for all years, the amount of cumulative temporary difference existing at the beginning of the year can be calculated by dividing the $40,000 balance in Deferred Tax Liability by 40%, which equals $100,000. This information may now be combined
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