100%(3)3 out of 3 people found this document helpful
This preview shows page 16 - 19 out of 22 pages.
b.What book–tax difference associated with its goodwill should RC report in year 2? Is it favorable or unfavorable? Is it permanent or temporary?Req AWhat book-tax difference associated with its goodwill should RC report in year 1? Is it favorable or unfavorable? Is it permanent or temporary? (Do not round intermediate computations.)Book-tax difference$28,500Is it favorable or unfavorable?FavorableIs it permanent or temporary?TemporaryBook tax difference = (1710,000 / 180 month ) X 3 month = 28500Req BWhat book-tax difference associated with its goodwill should RC report in year 2? Is it favorable or unfavorable? Is it permanent or temporary? (Do not round intermediate computations.)Book-tax difference$556,000Is it favorable or unfavorable?UnfavorableIs it permanent or temporary?TemporaryBook tax difference = (1710,000 / 180 month ) X 12 month = 114000= 670,000 - 114,000 = 556000
Explanationa.For tax purposes, RC amortizes the $1,710,000 using the straight-line method over 15 years (180 months). Consequently, in year 1, RC will amortize and deduct $28,500 of the goodwill ($1,710,000/180 months x 3 months = $28,500) for tax purposes. However, for book purposes, RC does not expense any of the goodwill because there is no impairment. Consequently, in year 1, RC will report a favorable $28,500 temporary difference associated with the goodwill.b.In year 2, RC amortizes $114,000 of the goodwill for tax purposes ($1,710,000/180 x 12 months = $114,000). For book purposes RC writes off (deducts) $670,000 in goodwill. Consequently, it reports a $556,000 unfavorable temporary book-tax difference in year 2.19- Riverbend Inc. received a $240,000 dividend from stock it held in Hobble Corporation. Riverbend's taxable income is $2,710,000 before deducting the dividends received deduction (DRD), a $50,500 NOL carryover, anda $153,000 charitable contribution. Use Exhibit 16-6.(Round your tax rates to 1 decimal place. Leave no answer blank. Enter zero if applicable.)a.What is Riverbend’s deductible DRD assuming it owns 10 percent of Hobble Corporation?DRD = 240,000 X 50% = 120,000Explanationa.Because Riverbend owns less than 20 percent of Hobble, its DRD percentage is 50%. Its full DRD is $120,000 (0.5 × $240,000). Riverbend's modified taxable income for the taxable income limitation is $2,557,000 ($2,710,000 minus $153,000 charitable contribution). Thus, the taxable income limit is $1,278,500 ($2,557,000 × 50%). Because the full $120,000 DRD is less than the taxable income limit, Riverbend may deduct the entire $120,000 DRD.20- Grand Corporation reported pretax book income of $732,500. Tax depreciation exceeded book depreciation by $630,000. In addition, the company received $232,000 of tax-exempt municipal bond interest. The company’s prior-year tax return showed taxable income of $49,000. Compute the company's current or deferred income tax expense or benefit.Deferred income taxbenefits$27,195Pretax income in books$ 732500Tax depreciation exceeded in book$ (630000)
Tax-exempt municipal bond interest$ (232000)Net Operating Loss$ (129500)So, NOL credit back of prior period = $ 129,500Deferred income tax benefit = $129500 X 21% = $ 27195ExplanationPretax book income$ 732,500 Excess tax depreciation(630,000)Tax-exempt interest income(232,000)Net operating loss$(129,500)The NOL can only be carried forward to offset income in a future year. The entire $129,500 NOL carryover willbe recorded as a deferred tax asset (benefit) of $27,195 ($129,500 x 21%). Grand Corporation will have to