Su06Ch19_Solutions

Su06Ch19_Solutions - CHAPTER 19 Accounting for Income Taxes...

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19-1 CHAPTER 19 Accounting for Income Taxes EXERCISE 19-6 (10-15 minutes) (a) (2) (f) (2) (b) (1) (g) (3) (c) (3) (h) (3) (d) (1) (i) (3)* (e) (2) (j) (1) *When the cost method is used for financial reporting purposes, the dividends are recognized in the income statement in the period they are received, which is the same period they be must be reported on the tax return. However, depending on the level of ownership by the investor, 70% or 80% of the dividends received from other U.S. corporations may be excluded from taxation because of a “dividends received deduction.” These tax-exempt dividends create a permanent difference. EXERCISE 19-7 (10-15 minutes) (a) greater than (b) $190,000 = ($76,000 divided by 40%) (c) are not (d) less than (e) benefit; $15,000 (f) $3,500 = [($100,000 X 40%) – $36,500] (g) debit (h) $59,000 = ($82,000 – $23,000) (i) more likely than not; will not be (j) benefit
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19-2 EXERCISE 19-9 (15-20 minutes) 2001 Income Tax Expense . ..................................................... 32,000 Income Tax Payable ($80,000 X 40%). ................... 32,000 2002 Income Tax Refund Receivable. .................................... 72,000 ($160,000 X 45%) Benefit Due to Loss Carryback (Income Tax Expense) . ....................................... 72,000 2003 Income Tax Refund Receivable. .................................... 32,000 Benefit Due to Loss Carryback (Income Tax Expense) . ....................................... 32,000 ($80,000 X 40%) 2003 Deferred Tax Asset . ........................................................ 120,000 Benefit Due to Loss Carryforward (Income Tax Expense) . ....................................... 120,000 [40% X ($380,000 – $80,000)] 2004 Income Tax Expense . ........................................................ 48,000 Deferred Tax Asset (40% X $120,000). ...................... 48,000 2005 Income Tax Expense . ........................................................ 40,000 Deferred Tax Asset ($100,000 X 40%). ...................... 40,000 Note : Benefit Due to Loss Carryback and Benefit Due to Loss Carryforward amounts are negative components of income tax expense.
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19-3 EXERCISE 19-14 (20-25 minutes) (a) Income Tax Expense . ............................................. 298,000 Deferred Tax Asset. ................................................ 30,000 Income Tax Payable. ....................................... 328,000 Taxable income $820,000 Enacted tax rate 40% Income tax payable $328,000 Deferred Tax Date Cumulative Future Taxable (Deductible) Amounts Tax Rate (Asset) Liability 12/31/04 $(450,000) 40% $(180,000 ) EXERCISE 19-14 (Continued) Deferred tax asset at the end of 2004 $180,000 Deferred tax asset at the beginning of 2004 150,000 Deferred tax benefit for 2004 (increase in deferred tax asset account) (30,000) Current tax expense for 2004 (Income tax payable) 328,000 Income tax expense for 2004 $298,000 (b) The journal entry at the end of 2004 to establish a valuation account: Income Tax Expense . ................................................ 30,000
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Su06Ch19_Solutions - CHAPTER 19 Accounting for Income Taxes...

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