PROBLEM SOLVING

The next two items are based on the following:

Bee Corp. prepared the following reconciliation between book income and taxable income for the year ended December
31, 20x0:

Pretax accounting income 500,000

Taxable income 300,000
Difference 200,000

Interest on municipal bonds 50,000

Lower depreciation per financial statements 150,000
Total differences 200,000

Bee's effective income tax rate for 20x0 is 30%. The depreciation difference will reverse equally over the next three years
at enacted tax rates as follows:
Years Tax rates
20x1 30%
20x2 25%
20x3 25%

In Bee's 20x0 income statement, the current portion of its provision for income taxes should be
a. 150,000
b. 125,000
c. 90,000
d. 75,000

In Bee's 20x0 financial statements, the deferred portion of its provision for income taxes should be
a. 60,000
b. 50,000
c. 45,000
d. 40,000

In its December 31, 20x0 balance sheet, Quinn Co. reported a deferred tax asset of ₱9,000 and no deferred tax liability.
For 20x1, Quinn reported pretax financial statement income of ₱300,000. Temporary differences of ₱100,000 resulted in
taxable income of ₱200,000 for 20x1. At December 31, 20x1, Quinn had cumulative taxable differences of ₱70,000.
Quinn's effective income tax rate is 30%. In its December 31, 20x1, income statement, what should Quinn report as
deferred income tax expense?
a. 12,000
b. 21,000
c. 30,000
d. 60,000

On its December 31, 20x1, balance sheet, Shin Co. had income taxes payable of ₱13,000 and a deferred tax asset of
₱20,000 before determining the need for a valuation account. Shin had reported a deferred tax asset of ₱15,000 at
December 31, 20x0. No estimated tax payments were made during 20x1. At December 31, 20x1, Shin determined that it
was more likely than not that 10% of the deferred tax asset would not be realized. In its 20x1 income statement, what
amount should Shin report as total income tax expense?
a. 8,000
b. 8,500
c. 10,000
d. 13,000

Taft Corp. uses the equity method to account for its 25% investment in Flame, Inc. During 20x1, Taft received dividends of
₱30,000 from Flame and recorded ₱180,000 as its equity in the earnings of Flame. Additional information follows:
 All the undistributed earnings of Flame will be distributed as dividends in future periods.
 The dividends received from Flame are eligible for the 80% dividends received deduction.
 There are no other temporary differences.
 Enacted income tax rates are 30% for 20x1 and thereafter.

In its December 31, 20x1, balance sheet, what amount should Taft report for deferred income tax liability?
a. 9,000
b. 10,800
c. 45,000
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d. 54,000

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Bishop Corporation began operations in 20x7 and had operating losses of ₱200,000 in 20x7 and ₱150,000 in 20x8. For
the year ended December 31, 20x9, Bishop had pretax book income of ₱300,000. For the three-year period 20x7 to 20x9,
assume an income tax rate of 40% and no permanent or temporary differences between book and taxable income. In
Bishop’s 20x9 income statement, how much should be reported as total income tax expense?
a. 0
b. 40,000
c. 60,000
d. 120,000

The next two items are based on the following:

Venus Corp.’s worksheet for calculating current and deferred income taxes for 20x2 follows:
20x2 20x3 20x4

Venus had no prior deferred tax balances. In its 20x2 income statement, what amount should Venus report as:

Current income tax expense?

a. 420
b. 350
c. 300
d. 0
Deferred income tax expense?
a. 350
b. 300
c. 120
d. 95

Black Co., organized on January 2, 20x0, had pretax financial statement income of ₱500,000 and taxable income of
₱800,000 for the year ended December 31, 20x0. The only temporary differences are accrued product warranty costs,
which Black expects to pay as follows:
20x1 ₱100,000
20x2 50,000
20x3 50,000
20x4 100,000
The enacted income tax rates are 25% for 20x0, 30% for 20x1 through 20x3, and 35% for 20x4. Black believes that future
years' operations will produce profits. In its December 31, 20x0, balance sheet, what amount should Black report as
deferred tax asset?
a. 50,000
b. 75,000
c. 90,000
d. 95,000

Rom Corp. began business in 20x1 and reported taxable income of ₱50,000 on its 20x1 tax return. Rom's enacted tax
rate is 30% for 20x1 and future years. The following is a schedule of Rom's December 31, 20x1, temporary differences in
thousands of dollars:

What amount should Rom report as total deferred tax asset in its December 31, 20x1, balance sheet?
a. 0
b. 1,500
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c. 4,500

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 d. 6,000

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