ACCT3103 - Intermediate Financial Accounting II

Assignment 4 - Solutions

Question 1:
For the year 2020
Dr. Income Tax Expense 13,600
Cr. Income Taxes Payable 13,600
($68,000 × 20%)

Dr. Income Tax Expense 7,600

Cr. Deferred Tax Liability 7,600

Workings:
Taxable income for 2020
Pretax financial income................................................. $120,000
Nondeductible expenses............................................... 14,000
Nontaxable revenues...................................................... (26,000)
Gross profit on installment sales................................. (40,000)
Taxable income.............................................................. $68,000

Deferred tax for 2020

Enacted Taxable Deferred tax
Rate Amount Liability
2021 20% $20,000 $4,000
2022 18 15,000 2,700
2023 18 5,000 900
$40,000 $7,600
Question 2
For the year 2020
Dr. Income Tax Expense 29,750
Cr. Income Taxes Payable 29,750
($90,000 – $20,000 – $35,000 + $50,000) × 35%

Dr. Deferred Tax Asset 14,250

Cr. Income Tax Expense / benefit 4,250
Cr. Deferred Tax Liability 10,000

Enacted Gross profit Deferred Warranty Deferred

rate on collections tax liability payments tax assets
2021 30% $15,000 $4,500 $20,000 $6,000
2022 30% 10,000 3,000 15,000 4,500
2023 25% 5,000 1,250 10,000 2,500
2024 25% 5,000 1,250 5,000 1,250
$35,000 $10,000 $50,000 $14,250

For reference only

Stuart Corporation
Partial Income Statement
For the Year Ended December 31, 2020
Income from continuing operations before income taxes $90,000
Income taxes:
Current provision $(29,750)
Deferred benefit 4,250 (25,500)
Net income $64,500