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Class%2B2%2BTG%2B-Problems

# Class%2B2%2BTG%2B-Problems - UGBA 120B Section 2 TAXES Eric...

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UGBA 120B: Section 2 TAXES Eric Desai

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Multiple choice c. The deferred tax liability is recognized at the rate anticipated in the period when the temporary difference reverses. Therefore, the deferred tax liability is \$12,000 × 25% or \$3,000.
Multiple choice b. The annual rent of \$36,000 is taxable in 2009 but only \$18,000 is considered rental income for financial purposes. This creates a temporary difference of \$18,000 which will be taxed at the future enacted tax rate of 40%. Therefore, the deferred tax asset at December 31, 2009 is \$7,200 (\$18,000 × 40%).

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Multiple choice c. Total income tax expense is the total of the two journal entries or \$10,000
Multiple choice a. The nondeductible book expenses are permanent differences and do not affect taxes. The temporary depreciation difference (\$25,000) times the enacted future tax rate (35%) will be the deferred tax liability on the December 31, 2009 balance sheet (\$25,000 × 35% = \$8,750 deferred tax liability).

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Multiple choice d. \$95,000. Deferred taxes are calculated using future enacted tax rates Year Temporary Differences × Enacted Tax Rates = Deferred Tax Asset 2010 \$100,000 × 30 % = \$30,000 2011 \$ 50,000 × 30 % = 15,000 2012 \$ 50,000 × 30 % = 15,000 2013 \$100,000 × 35 % = 35,000 Total Deferred Tax Asset \$95,000
Multiple choice c. The tax benefit of loss carryback would be \$40,000 (\$100,000 × 40%) and would result in a tax refund for 2008. The other \$100,000 of the loss would be carried forward to offset a portion of the 2009 income. The tax liability would be the 2009 pretax income of \$400,000 less the loss carryforward of \$100,000 times the 40% tax rate for a total liability of \$120,000.

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Multiple choice a. Only an extraordinary item requires intraperiod allocation of income tax. "Interest income on municipal obligations" results in a permanent difference, and "Estimated expenses for major repairs..." and "Rental income included in income for income tax purposes" result in temporary differences
Additional exercises Exercise 16-1 Stancil Industries reports pretax accounting income of \$80 million, but due to a single temporary difference, taxable income is only \$50 million. At the beginning of the year, no temporary differences existed.

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