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2007 with a $92,000 balance in the Deferred Tax Liability account. At the of 2007, the related cumulative temporary difference amounts to $350,000, and it will reverse evenly the next 2 years. Pretax accounting income for 2007 is $525,000, the tax rate for all years is 40%, and income for 2007 is $405,000. Instructions (a) Compute income taxes payable for 2007. 162000
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2007. Income Tax Expense ### Income Tax Payable ### Deferred Income Taxes ### (c) Prepare the income tax expense section of the income statement for 2007 beginning with the line “Income before income taxes.” Income before income taxes 525000 Income tax expense Current 162000 Deferred 48000 210000 Net income 315000
E19-6 (Identify Temporary or Permanent Differences) Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes. Instructions For each item below, indicate whether it involves: (1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset. (2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability. (3) A permanent difference. Use the appropriate number to indicate your answer for each. (a) ___2___ The MACRS depreciation system is used for tax purposes, and the straight-line depreciatio method is used for financial reporting purposes for some plant assets. (b) ____1__ A landlord collects some rents in advance. Rents received are taxable in the period when they are received. (c) ____3__ Expenses are incurred in obtaining tax-exempt income. (d) ___1___ Costs of guarantees and warranties are estimated and accrued for financial reporting purposes. (e) ___2___ Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes. (f) ____1__ For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes but the assets’ lives are shorter for tax purposes. (g) ___3___ Interest is received on an investment in tax-exempt municipal obligations. (h) ___3___ Proceeds are received from a life insurance company because of the death of a key officer
. corporation The cost method is used in accounting for the related investments for financial reporting purposes. (j) ___1___ Estimated losses on pending lawsuits and claims are accrued for books. These losses are tax deductible in the period(s) when the related liabilities are settled.S.) (i) ___2___ The tax return reports a deduction for 80% of the dividends received from U.(The company carries a policy on key officers. (k) ___2___ Expenses on stock options are accrued for financial reporting purposes.
. and it will reverse evenly over x rate for all years is 40%. e of the death of a key officer.eginning Deferred Taxes) d Tax Liability account. will usually give d the straight-line depreciation taxable in the period when d for financial reporting rual method for financial ancial reporting purposes l obligations. At the end 00. therefore. and income taxes 2007 beginning with the line ems that are commonly or tax purposes. nd. will usually therefore. and taxable ome taxes.
corporations. . These losses are purposes.ceived from U. for books.S.
000 and deferred tax benefit of $23 will report total income tax expense of $________. greater than) pretax financial income for 2007.000 for Year 2 and a tax rate of 40%. are not) recorded to account for permanent differences. Year 2. will not be) realized. (b) If a $76.000 and deferred tax expense is $65. (h) An income statement that reports current tax expense of $82. No Temporary Differences) The pretax financial income (or loss) figure for Jenny Sprangler Company are as follows: 2002 2003 2004 2005 $160. (f) If a corporation’s tax return shows taxable income of $100. No Valuation Account.000) . balance sheet for “Income tax payable” if the company has made estimated tax payments of $36. greater than) pretax financial income.000.000 is referred to as deferred tax _______ (expense. benefit) of $_______. then the current portion of th expense computation is referred to as current tax _______ (expense. E 19-9 Carryback and Carryforward (Carryback and Carryforward of NOL.000 balance in Deferred Tax Asset was computed by use of a 40% rate. it will cause taxable income for 2007 to be ________ (less than.E19-7 Instructions Complete the following statements by filling in the blanks.500 for Year 2? $________. (a) In a period in which a taxable temporary difference reverses. (j) If the tax return shows total taxes due for the period of $75. the underlying cumulative temporary difference amounts to _______.000 80. 59000 (i) A valuation account is needed whenever it is judged to be _______ that a portion of a deferred tax asset _______ (will be.000 but the income statement shows total income tax expense of $55.000 250. the reversal will cause taxable incom to be _______ (less than. how much will appear on the December 31. (d) If a taxable temporary difference originates in 2007. (g) An increase in the Deferred Tax Liability account on the balance sheet is recorded by a _______ (debit.000. 190000 (c) Deferred taxes ________ (are. benefit). credit) to the Income Tax Expense account. the difference of $20.000 (160. (e) If total tax expense is $50.
) Income Tax Refund Receivable Benefit Due to Loss Carryback-income tax exp 72.000 Benefit Due to Loss Carryback-income tax exp 32.000 2008 100.000 Benefit Due to Loss Carryforward (Income Tax Expense) 120. assume that no valuation account is deemed necessary.000 48.000 Pretax financial income (or loss) and taxable income (loss) were the same for all years involved.2006 (380. Instructions Prepare the journal entries for the years 2004 to 2008 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Jenny Spangler Company uses the carryback provision.000) 2007 120.000 Income Tax Expense Deferred Tax Asset Income Tax Expense Deferred Tax Asset 48. (In recording the benefits of a loss carryforward.000 Income Tax Refund Receivable 32.000 Deferred Tax Asset (start carry-forward) 120.000 72.000 40000 40000 . Assume a 45% tax rate of 2002 and 2003 and a 40% tax rate for the remaining years. All income and losses relate to normal operations.
000 n of a deferred e statement shows deferred tax _______ .cause taxable income te. x payable” if the 3500 rded by a _______ ed tax benefit of $23. the underlying me for 2007 to be current portion of the 15.000 a tax rate of 40%.