ACCOUNTING FOR TAXES & EMPLOYEE BENEFITS

Problem

1. Juan Company is in the first year of operations and reported pretax accounting income of 4,000,000.
The entity provided the following information for the first year:
Premium of life insurance of key offer 100,000
Depreciation on tax return in excess of book depreciation 200,000
Tax exempt interest income 50,000
Warranty expense 40,000
Actual warranty repair 30,000
Doubtful account expense 60,000
Write-off of uncollectable accounts 20,000
Rent receive in advance 300,000
Current and future taxes 30%

What is the taxable income for the first year?

a. 4,000,000
b. 4,100,000
c. 4,200,000
d. 4,500,000

2. Stressed Company reported pretax income of 2,000,000 in the income statement for the current year.
Tax Accounting record
Rent Income 100,000 150,000
Depreciation 300,000 250,000
Payment of penalty 10,000
Premiums on officer’s life insurance 90,000
Income tax rate 30%

What is the current provision for income tax for the current year?
a. 360,000
b. 300,000
c. 600,000
d. 2,000,000

3. Emerson Corp.'s 2021 income statement showed pretax accounting income of 750,000. To compute the
income tax liability, the following 2021 data are provided:
Income from government bonds 30,000
Depreciation deducted for tax purposes in excess of depreciation
deducted for financial statement purposes 60,000
Estimated income tax payments made 150,000
Enacted corporate income tax rate 30%
What amount of current income tax liability should be included in Hagg's December 31, 2021 statement
of financial position?
a. 48,000
b. 66,000
c. 75,000
d. 198,000

4. The following information was extracted from the records of Cooper Company on December 31, 2021:

Carrying amount Tax base

Accounts Receivable 1,500,000 1,750,000
Motor Vehicle 1,650,000 1,250,000
Provisions for warranty 120,000 0
Deposit received in advance 150,000 0

The depreciation rates for accounting and taxation are 15% and 25% respectively. The deposits are
taxable when received and warranty cost are deductible only when paid. The tax rate is 30%. Cooper
Company should report a deferred tax liability on December 31, 2021 at
 a. 120,000
b. 156,000
c. 81,000
d. 36,000

5. On January 1, 2021, Kris Corp. purchased 40% of the voting common stock of Tris, Inc. and
appropriately accounts for its investment by the equity method. During 2021, Tris reported earnings of
360,000 and paid dividends of 120,000. Kris assumes that all of Tris' undistributed earnings will be
distributed as dividends in future periods when the enacted tax rate will be 30%. Ignore the dividend-
received deduction. Kris's current enacted income tax rate is 25%. The increase in Kris's deferred
income tax liability for this temporary difference is
a. 72,000.
b. 60,000.
c. 43,200.
d. 28,800.

6. For calendar year 2021, Kris Corp. reported depreciation of 1,200,000 in its income statement. On its
2021 income tax return, Kris reported depreciation of 1,800,000. Kris's income statement also included
225,000 accrued warranty expense that will be deducted for tax purposes when paid. Kris's enacted tax
rates are 30% for 2021 and 2022, and 24% for 2023 and 2024. The depreciation difference and
warranty expense will reverse over the next three years as follows:
Depreciation Difference Warranty Expense
2022 240,000 45,000
2023 210,000 75,000
2024 150,000 105,000
600,000 225,000
These were Kris's only temporary differences. In Kris's 2021 income statement, the deferred portion of
its provision for income taxes should be
a. 200,700.
b. 112,500.
c. 101,700.
d. 109,800.

7. The following differences enter into the reconciliation of financial income and taxable income of Jumong
Company for the year ended December 31, 2021, its first year of operations.

Life insurance expense P 100,000

Excess tax depreciation 2,000,000
Warranty expense 200,000
Litigation accrual 500,000
Unamortized computer software 3,000,000
Unearned rent revenue deferred on the books but appropriately
recognized in taxable income 400,000
Interest income from long-term certificate of deposit 200,000

Additional information:
 On July 1, 2021 Jumong paid insurance premium of 200,000 on the life of an officer with Jumong
Company as beneficiary.
 Excess tax depreciation will reverse equally over a four-year period, 2022-2025.
 The warranty liability is the estimated warranty cost that was recognized as expense in 2021 but
deductible for tax purposes when actually paid.
 It is estimated that the litigation liability will be paid in 2025.
 In January 2021, Jumong Company incurred 4,000,000 of computer software cost. Considering
the technical feasibility of the project, this cost was capitalized and amortized over 4 years for
accounting purposes. However, the total amount was expensed in 2021 for tax purposes.
 Rent revenue will be recognized during the last year of the lease, 2025.
 Interest revenue from the from long-term certificate of deposit is expected to be 200,000 each year
until their maturity at the end of 2025.
 Pretax accounting income is 10,000,000.
Tax rate is 35%.
 Based on the above and the result of your audit, compute for the following:

1. Total temporary differences

a. 6,400,000 b. 6,100,000 c. 4,100,000 d. 7,100,000

2. Deferred tax liability

a. 1,050,000 b. 2,100,000 c. 1,890,000 d. 1,750,000

3. Deferred tax asset

a. 385,000 b. 245,000 c. 1,085,000 d. 210,000

4. Current income tax expense

a. 2,100,000 b. 2,800,000 c. 1,750,000 d. 1,820,000

5. Total income tax expense

a. 3,535,000 b. 3,465,000 c. 3,500,000 d. 4,830,000

8. The December 31, 2021 income statement of Batista co. showed the following information:
Net income before income taxes 3,900,000
Income tax (35%) (1,365,000)
Net income after tax 2,535,000
In your audit of the income tax and related account you discovered the following information:

 At December 31, 2021, the company has a 900,000 liability reported for estimated litigation
claims. This 900,000 balance represents amounts which has been charged to the current income
but is not tax deductible until paid. The company expects to pay the claims and thus have tax
deductible amounts in the future in the following manner: P350, 000 to be paid in 2022, P490,
000 to be paid in 2023 and P60, 000 to be paid in 2024.
 The Company started using the different depreciation method for tax purposes during the current
year. Consequently, at December 31, 2021, the company has a temporary difference amounting
2,400,000 due to depreciable property. This amount is to result to taxable amounts in future
years at the rate of 480,000 from 2022 to 2026.
 The income tax rates enacted at the beginning of 2021 are as follows: 2021 and 2022, 35%;
2023 and later 30%

How much is the current portion of the Batista’s income tax expense for the year 2021?
a. 1,365,000
b. 1,296,500
c. 840,000
d. 1,314,000

How much is the adjusted net income of Batista for the year 2021?
a. 2,586,000
b. 2,603,500
c. 2,535,000
d. 2,400,000

9. On January 1, 2021 Angel Company had the following balances related to a defined benefit plan:

Fair Value of Plan Asset 8,710,500

Projected Benefit Obligation 10,500,500

Angelika provided the following data for the current year:

Current service cost 710,000

Settlement discount rate 8%
Actual Return on Plan assets 850,000
Contribution to the Plan 999,000
Benefits paid to retirees 195,500
 What is the employee benefit expense?
a. 675,000
b. 600,000
c. 853,200
d. 650,000

10. On January 1, 2021, Kaila Company reported fair value on plan assets at 6,500,000 and projected
benefit obligation at 7,500,000.

During the current year, the entity determined that the current service cost was 1,200,000 and the
discount rate is 10%. The actual return on plan assets was 800,000 during the year.

The entity provided the following information during the year related to the defined benefit plan.

Contribution to the plan 1,200,000

Benefits paid to retirees 1,500,000
Decrease in projected benefit obligation
due to change in actuarial assumptions 200,000

What is the total remeasurement gain?

a. 350,000
b. 150,000
c. 200,000
d. 800,000

11. Ozz Company had a noncontributory defined benefit pension plan. On December 31, 2021, the entity
received the projected benefit obligation report from the independently actuary.
Pension benefits paid 135,000
PBO on December 31, 2021 2,160,000
Interest expense 120,000
Discount rate 8%

What is the current service cost for 2021?

a. 675,000
b. 810,000
c. 540,000
d. 255,000

12. Jerome Company provided the following information:

January1 December 31
Fair value of plan assets 3,500,000 3,900,000
Market related value of plan assets 2,800,000 2,900,000
Contribution to the plan 280,000
Benefits paid to retirees 250,000

What is the actual return on plan assets for the current year?
a. 400,000
b. 370,000
c. 430,000
d. 100,000

13. Angel Company had the following balances relating to the defined benefit plan on December 31, 2021:
Fair value of plan assets 37,000,000
Projected benefit obligation 33,000,000
Asset ceiling 2,500,000

What is the prepaid benefit cost on December 31, 2021?

a. 4,000,000
b. 1,500,000
c. 2,500,000
d. 0
14. On January 1, 2021, Jerome Company reported fair value of plan assets at 6,500,000 and projected
benefit obligation at 7,500,000. During the current year, the entity determined that the current service
cost was 1,200,000 and the discount rate is 10%. The actual return on plan assets was 800,000 during
the year. Other information during the year related to the defined benefit plan is as follows:
Contribution to the plan 1,200,000
Benefits paid to retires 1,500,000
Decrease in projected benefit obligation due
to change in actuarial assumptions 200,000

Q1. What is the employee benefit expense?

a. 1,300,000
b. 1,950,000
c. 1,200,000
d. 1,100,000

Q2. What is the total remeasurement gain?

a. 350,000
b. 150,000
c. 200,000
d. 800,000

Q3. What is the fair value of plan assets on December 31?

a. 7,000,000
b. 8,500,000
c. 8,350,000
d. 7,550,000

Q4. What is the projected benefit obligation on December 31?

a. 7,750,000
b. 8,700,000
c. 9,250,000
d. 7,950,000

15. On January 1, 2021, Trisha Company reported the fair value of plan assets at 6,000,000 and projected
benefit obligation at 8,000,000. During the year, the entity made a lump sum payment too certain plan
participants in exchange for their rights to receive specified postemployment benefits. The lump sum
payment was 800,000 and the present value of the defined benefit obligation settled was 1,000,000. In
addition, the following data are gathered during the current year:
Current service cost 900,000
Actual return on plan assets 800,000
Contribution to the plan 700,000
Discount rate 12%

Q1. What is the employee benefit expense?

a. 1,140,000
b. 1,860,000
c. 900,000
d. 940,000

Q2. What is the fair value of plan assets on December 31?

a. 7,500,000
b. 6,700,000
c. 6,000,000
d. 5,900,000

Q3. What is the projected benefit obligation on December 31?

a. 8,900,000
b. 8,860,000
c. 9,680,000
d. 9,060,000

Q4. What is the accrued benefit cost on December 31?

 a. 2,160,000
b. 2,000,000
c. 3,160,000
d. 2,240,000

16. Joshtin Company provided the following information during 2021:

January 1 December 31
Fair value of plan assets 6,000,000 7,900,000
Projected benefit obligation 5,000,000 5,900,000
Prepaid/accrued benefit cost- surplus 1,000,000 2,000,000
Asset ceiling 700,000 1,200,000
Effect of asset ceiling 300,000 800,000
During the current year, the following data are gathered:
Current service cost 700,000
Past service cost 200,000
Actual return on plan assets 900,000
Decrease in projected benefit obligation due
change in actuarial assumptions 1,000,000
Discount rate 10%

Q1. What is the employee benefit expense?

a. 830,000
b. 900,000
c. 800,000
d. 870,000

Q2. What is the net remeasurement gain?

a. 330,000
b. 800,000
c. 300,000
d. 500,000
e. 830,000