ACC306WEEK3ASSGN - E 16-24 Balance sheet classification LO4...

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Unformatted text preview: E 16-24 Balance sheet classification LO4 LO5 LO6 LO8 At December 31, DePaul Corporation had a $16 million balance in its deferred tax asset account and a $68 million balance in its deferred tax liability account. The balances were due to the following cumulative temporary differences: 1. Estimated warranty expense, $15 million: expense recorded in the year of the sale; tax-deductible when paid (one-year warranty). 2. Depreciation expense, $120 million: straight-line in the income statement; MACRS on the tax return. 3. Income from installment sales of properties, $50 million: income recorded in the year of the sale; taxable when received equally over the next five years. 4. Bad debt expense, $25 million: allowance method for accounting; direct write-off for tax purposes. Required: Show how any deferred tax amounts should be classified and reported in the December 31 balance sheet. The tax rate is 40%. ($ in millions) Future Deferred Classification Taxable Tax (Asset) Related Balance current-C (Deductible) Tax Liability Sheet Account noncurrent-N Amounts Rate C N Liability warranty expense C (15) x 40% (6) Depreciable assets N 120 x 40% 48 Receivable installment sales C 10 x 40% 4 Receivable installment sales N 40 x 40% 16 Allowance uncollectible accounts C (25) x 40% (10) Net current liability (asset) (12) Net noncurrent liability (asset) 64 Current Assets: Deferred tax asset $12 Long-Term Liabilities: Deferred tax liability $64 Note: Before offsetting assets and liabilities within the current and noncurrent categories, the total deferred tax assets is $16 ($6+10) and the total deferred tax liabilities is $68 ($4+48+16). E 16-25 Multiple tax rates; balance sheet classification Case Development began operations in December 2011. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2011 installment income was $600,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2012-2014 are as follows: 2012 $150,000 30% 2013 250,000 40 2014 200,000 40 Pretax accounting income for 2011 was $810,000, which includes interest revenue of $10,000 from municipal bonds. The enacted tax rate for 2011 is 30%. Required: 1. Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Cases 2011 income taxes. 2. What is Cases 2011 net income? 3. How should the deferred tax amount be classified in a classified balance sheet? Requirement 1 ($ in thousands) Current Future Year Taxable 2011 Amounts 2012 2013 2014 Pretax accounting income 810 Permanent difference (10) Temporary difference: Installment sales (600 ) 150 250 200 Taxable income (tax return) 200 Enacted tax rate 30 % 30 % 40 % 40 % Tax payable currently 60 Deferred tax liability 45 100 80 225 Deferred tax liability:...
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ACC306WEEK3ASSGN - E 16-24 Balance sheet classification LO4...

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