e Compute the net deferred tax expense benefit for 2013 f Prepare the journal

E compute the net deferred tax expense benefit for

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(e)Compute the net deferred tax expense (benefit) for 2013.(f)Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2013.Solution 19-115(a)Depreciationfor FinancialDepreciation forTemporaryYearReporting PurposesTax PurposesDifference2012$120,000$198,000$ (78,000)2013120,000270,000(150,000)2014120,00090,00030,0002015120,00042,00078,0002016120,000-0-120,000$600,000$600,000$ -0-19 - 38
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Accounting for Income TaxesSolution 19-115(cont.)(b)2013201420152016TotalFuture taxable (deductible) amounts:Depreciation$(150,000) $30,000 $78,000$120,000$78,000Deferred tax liability: $78,000 × 40% = $31,200at the end of 2012.(c)201420152016TotalFuture taxable (deductible) amounts:Depreciation$30,000$78,000$120,000$228,000Rent(90,000)(90,000)(180,000)(d)Future Taxable(Deductible)TaxDeferred TaxTemporary DifferencesAmountsRate(Asset)LiabilityDepreciation$228,00040%$91,200Rent(180,000)40%$(72,000)Totals$ 48,000$(72,000)$91,200(e)Deferred tax asset at end of 2013$(72,000)Deferred tax asset at beginning of 2013-0-Deferred tax (benefit)$(72,000)Deferred tax liability at end of 2013$91,200Deferred tax liability at beginning of 201331,200Deferred tax expense$60,000Deferred tax (benefit)$(72,000)Deferred tax expense60,000Net deferred tax benefit for 2013$(12,000)(f)Income Tax Expense ($144,000 – $12,000)..................................132,000Deferred Tax Asset.........................................................................72,000Deferred Tax Liability..........................................................60,000Income Tax Payable ($360,000 × 40%).............................144,000Pr. 19-116—Deferred tax asset.Farmer Inc. began business on January 1, 2012. Its pretax financial income for the first 2 years was as follows:2012$240,0002013560,000The following items caused the only differences between pretax financial income and taxable income.19 - 39
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Test Bank for Intermediate Accounting, Fourteenth EditionPr. 19-116(cont.)1.In 2012, the company collected $240,000 of rent; of this amount, $80,000 was earned in 2012; the other $160,000 will be earned equally over the 2013–2014 period. The full $240,000 was included in taxable income in 2012.2.The company pays $10,000 a year for life insurance on officers.3.In 2013, the company terminated a top executive and agreed to $90,000 of severance pay. The amount will be paid $30,000 per year for 2013–2015. The 2013 payment was made. The $90,000 was expensed in 2013. For tax purposes, the severance pay is deductible as it is paid.The enacted tax rates existing at December 31, 2012 are:201230%201440%201335%201540%Instructions(a)Determine taxable income for 2012 and 2013.(b)Determine the deferred income taxes at the end of 2012, and prepare the journal entry to record income taxes for 2012.(c)Prepare a schedule of future taxable and (deductible) amounts at the end of 2013.(d)Prepare a schedule of the deferred tax (asset) and liability at the end of 2013.(e)Compute the net deferred tax expense (benefit) for 2013.(f)Prepare the journal entry to record income taxes for 2013.(g)Show how the deferred income taxes should be reported on the balance sheet at December 31, 2013.Solution 19-116(a)20122013Pretax financial income$240,000$560,000Permanent differences:Life insurance10,00010,000250,000570,000Temporary differences:Rent160,000(80,000)Severance pay-0-60,000Taxable income$410,000$550,000(b)20132014TotalFuture taxable (deductible) amounts:Rent$(80,000)$(80,000)$(160,000)Tax rate35%40%Deferred tax (asset) liability$(28,000)$(32,000)$(60,000) at end of2012Income Tax Expense ($123,000 – $60,000)..................................63,000Deferred Tax Asset.........................................................................60,000Income Tax Payable ($410,000 × 30%)...........................123,00019 - 40
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Accounting for Income TaxesSolution 19-116(cont.)(c)20142015TotalFuture taxable (deductible) amounts:Rent$(80,000)$(80,000)Severance pay(30,000)$(30,000)(60,000)(d)Future Taxable(Deductible)TaxDeferred Tax
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