Acc124Exam2Spring2007

Acc124Exam2Spring2007 - NAME_ EXAM #2 Spring 2007 Problem 1...

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NAME_________________________ EXAM #2 Spring 2007 Problem Topic Point Value Multiple Choice (Blackboard) 25 1 Accounting for Taxes 25 2 Stockholders’ Equity 25 3 Share-based Compensation and EPS 25 TOTAL 100 GOOD LUCK! Exam #2 / Spring 2007 / Page 1 of 7
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PROBLEM 1 – Accounting for Income Taxes (25 points) A. Deferred Taxes The following differences enter into the reconciliation of financial income and taxable income of Starfish Company for the year ended December 31, 2008, its first year of operations. The enacted income tax rate is 30% for 2008 and 2009 and 34% for 2010 and beyond. Pretax accounting income $500,000 Excess tax depreciation on tax return (300,000) Litigation accrual (expense on 2008 income statement) 45,000 Unearned rent revenue deferred on the books but recognized in taxable income 25,000 Interest income from New York municipal bonds (10,000) Taxable income $260,000 Additional Information 1. The excess tax depreciation will reverse over a four-year period as follows: $50,000 in 2009, $75,000 in 2010, $75,000 in 2011, and $100,000 in 2012. 2. It is estimated that the litigation liability will be paid in 2009, at which time it will be tax deductible. 3. Starfish collected the first and last years’ rent from a new tenant during 2008. Both years’ rent were reported as taxable revenue on the 2008 tax return. The last year’s rent is appropriately reported as unearned rent revenue on the balance sheet. The corresponding rent revenue will be recognized on the income statement during the last year of the lease, 2012. 4. The interest revenue from the New York bonds is not taxable. INSTRUCTIONS 1. Prepare the December 31, 2008, journal entry to record income tax expense, income taxes payable, and deferred taxes for Starfish. 2. Calculate net income for Starfish for the year ended December 31, 2008. 3. Calculate the effective tax rate for Starfish for the year ended December 31, 2008. Additional space is available on the next page, if necessary. Exam #2 / Spring 2007 / Page 2 of 7
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This homework help was uploaded on 04/10/2008 for the course ACT 123 taught by Professor Venuti during the Fall '07 term at Hofstra University.

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Acc124Exam2Spring2007 - NAME_ EXAM #2 Spring 2007 Problem 1...

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