CHAPTER 21

ACCOUNTING FOR INCOME TAX

Basic problems

Problem 21-1 (IAA)

Hilton Company reported pretax financial income of P6,200,000 for the current year. Included in
other income was P200,000 of tax-exempt interest revenue from government bonds held by the
entity.
The income statement included depreciation expense of P500,000 for a machine with cost of
P3.000,000. The income tax return reported P600,000 as depreciation on the machine. The enacted
tax rate is 25% for the current year and future years.
1. What amount should be reported as current tax expense for the current year?
Solution: Refer to Problem 21- 1 (Page 269)

Problem 21-2 (IAA)

Everest Company began operations at t the beginning of the current Fear. At the end of the first
year of operations, the entity reporent P6,000,000 income before income tax in the income
statement but only P5, 100,000 taxable income in the tax return.
Analysis of the P900,000 difference revealed that P500,000 was a Permanent difference and
P400,000 was a temporary tax liability Difference related to a current asset.
The enacted tax rate for the current year and future years is 25%.
1. What amount should be reported as current tax expense?
2. What amount should be reported as total income tax expense in the income statement for the
current year?
Solution: Refer to Problem 21- 2 (Page 270)
Problem 21-3 (IAA)
During the current year, Tiger Company reported pretax financial income DTP5,000,000. Included
in the pretax financial income are P900,000 of nontaxable life insurance proceeds received as a
result of death of an officer, PJ 200,000 of estimated warranty expertise accrued at year-end and
P200,000 of life insurance premiums for a policy for an officer.
No income tax was previously paid during the year and the income tax rate is 25%.
1. What amount should be reported as income tax payable at year-end?
2. What amount should be reported as total tax expense?
Solution: Refer to Problem 21- 3 (Page 271)
Problem 21-4 (AICPA Adapted)
Viking Company reported pretax financial income of P6,000,000 in the income statement for the
current year
Tax return Accounting record
Rent income 70,000 120,000
Depreciation 280,000 220,000
Payment of penalty 10,000
Premiums on officers life insurance 90,000
Income tax rate. 25%
1. What amount should be reported as current provision for income tax for the current year?
2. What amount should be reported as total tax expense?
Solution: Refer to Problem 21- 4 (Page 272)
Problem 21-5 (AICPA Adapted)
Crown Company reported in the first year of operations pretax financial income of P6,000,000.
The income tax rate is 25%.
Tax return Accounting record
Doubtful accounts expense 200,000 300,000
Depreciation expense 1,500,000 1,000,000
Tax exempt interest revenue 0 250,000
Premium on officers’ life insurance 0 150,000
Warranty cost 400,000 600,000
Rent received in advance 800,000 0
1. What amount should be reported as current tax expense?
2. What amount should be reported as total tax expense?
Solution: Refer to Problem 21-5 (Page 273)
Problem 21-6 (AICPA Adapted)
Dunn Company reported in the income statement for the current year P900,000 income before
provision for income tax.
Rent received in advance 150,000
Interest income on time deposit 200,000
Depreciation deducted for income tax purposes
In excess of financial depreciation 100,000
Income tax rate 25%
1. What amount should be reported as current provision for income tax or current tax expense
for the current year?
2. What amount should be reported as total tax expense?
Solution: Refer to Problem 21- 6 (Page 274)
Problem 21-7 (AICPA Adapted)
Pine Company reported pretax financial income of P8,000,000 for the current year. In the
computation of income taxes, the following data were considered:
Nontaxable gain 1,500,000
Depreciation deducted for tax purposes in excess of
depreciation deducted for book purposes 500,000
Estimated tax payment during the year 700,000
Enacted tax rate 25%
1. What amount should be reported as current tax liability or income tax payable at year-end?
2. What amount should be reported as total income tax expense?
Solution: Refer to Problem 21- 7 (Page 275)
Problem 21-8 (IFRS)
Ireland Company reported pretax accounting income of P8,000,000 for the current year which
included the following items of income and expense:
Donation to political parties – nondeductible 1,000,000
Depreciation – 20% 1,600,000
Annual leave expense 700,000
Rent revenue 1,200,000
Income tax rate 25%
For tax purposes, the depreciation rate is 25%, the annual leave paid is P800,000 and the rent
received is P1,000,000.
1. What amount should be reported as current tax liability at year-end?
Solution: Refer to Problem 21- 8 (Page 276)
Problem 21-9 (IAA)
Punk Company reported the following partial income statement after the first year of operations:
Income before income tax 7,500,000
Income tax expense
Current 1,750,000
Deferred 125,000 1,875,000
Net income 5,625,000
The entity used the straight line method of depreciation for financial reporting purposes and
accelerated depreciation for tax purposes. The amount charged to depreciation expense per book
was P1,500,000.
No other differences existed between book income and taxable income except for the amount of
depreciation. The income tax rate is 25%.
1. What amount was deducted for depreciation in the tax return for the current year?
2. What amount was reported as taxable income?
Solution: Refer to Problem 21- 9 (Page 277)
Problem 21-10 (AICPA Adapted)
Jasco Company is in the first year of operations and reported pretax accounting income of
P5,000,000. The entity provided the following information for the first year:
Premium on life insurance of key officer 150,000
Depreciation on tax return in excess of book depreciation 200,000
Tax-exempt interest income 50,000
Estimated warranty expense 90,000
Actual warranty repairs 30,000
Doubtful accounts expense 60,000
Writeoff of uncollectible accounts 20,000
Rent received in advance 300,000
Income tax rate 25%
1. What amount should be reported as current tax expense?
Solution: Refer to Problem 21- 10 (Page 278)