| t Comprchensive Aecounting Reviewer Series Aotame |: Financial Hecounting and Reported FINANCIAL A‘ ; B PROBLEM 43-1 Income Taxes; Pr JOM Co. reported taxable income of 8,000,000 in operations. The entity revealed the income and taxable income for the year: ic Procedures _ 01 come COUNTING AND REPORTING PROBLEMS tax return for the first year following temporary differences between Financia) P800,000 — jation , Tax depreciation in excess of book beak of actual claim 1,200,000 Accrual for product liability claim in ex a eeable Reported installment sales income in excess 2,600,000 installment sales income 30% Income tax rate Required: Compute for the following— 1. Deferred tax asset at year-end. A... 120,000 Cc. 330,000 B. 240,000 D. 360,000 2. Deferred tax liability at year-end. A 120,000 C. 780,000 . B. 240,000 D. . 1,020,000 3. Deferred tax expense for the first year. A. 240,000 C. 660,000 B. 360,000 D. 1,020,000 4. Total tax expense for the first year. A. 2,400,000 C. 3,300,000 B. 2,960,000 D. 3,060,000 PROBLEM 43-1 Answers & Solutions Guide 1. ANSWER; D Accrual for product liability claim in excess of actual claim (Future deductible amount) 1,200,000 X: Tax rate 30% Deferred tax asset 360,000 2. ANSWER: D Tax depreciation in excess of book depreciation 800,000 Reported installment sales income in excess of taxable , installment sales income 2,600,000 Total future taxable amount —3‘400,000 X: Tax rate : 30% Deferred tax liability “1020,000° 3. ANSWER: C Future taxable amount 3,400,01 Less: Future deductible amount 1, 200 nn Net future taxable’amount : 2,200,000 X: Tax rate 30% Deferred tax expense 1756 anne etalChapter _: (Putte) te: If it resulted to a net future ded notes luctible amount, the result will be deferred tax 4, ANSWER: D Current tax expense (8M x 30%) add (Deduct): Deferred tax expense (benefit) Serie Total tax expense ~:nso,000- PROBLEM 43-2 Balance Sheet Method JLC company reported the following difference between the book bas an assets and liabilities on December 31, 2022, which is the end book basis an id tax basis of end of the first year of operations: Ganying Tax Amount Base Installment accounts receivable —_P 1,000,000 - Litigation liability 200,000 - It is expected that the litigation liability will be settled in 2023. The difference in accounts receivable will result in taxable amounts of P600,000 in 2023 and P400,000 in 2024. The entity has a taxable income of P7,000,000 in 2022 and is expected to have taxable income in each of the following in each of the following 2 years. The income tax rate is 30%. Required: 5. What is the current tax expense? A. 900,000 Cc. 2,100,000 B. 1,200,000 D. — 2,200,000 6. What is the deferred tax expense? A Zero Cc. 240,000 B. 60,000 D. — 300,000 7. What is the total tax expense? A. 2,240,000 C. 2,430,000 B. 2,340,000 D. 3,230,000 PROBLEM 43-2 Answers & Solutions Guide 1. ANSWER: C Current tax expense = Taxable income x Current tax rate Current tax expense = 7,000,000 x 30% Current tax expense = 2,100,000 2. ANSWER: C Future taxable amount 1,000,000 less: Future deductible amount __(200,000) _ Net future taxable amount 800,000 X Enacted tax rate 30% Deferred tax expense 240,000 il ta Note: if it resulted to a net future deductible amount, the result will be deferred tax 1757| i Comprehensive Accounting Reiewer Sees Volume 1 Financial Accounting and Reporting 3. ANSWER: B 2,100,000 Current tax expense Ao aD ‘Add (Deduct): Deferred tax expense (benefit) ___240,7 ( ) Total tax expense 00 PROBLEM 43-3 Balance Sheet Method On December 31, 2022, the accounts of RCC C tax purposes, except for the following: Carrying amount Tax base ‘0. have the same basis for accounting and Computer software cost P4,000,000 - Equipment 15,000,000 — P12,000,000 Accrued liability-health care 2,000,000 - In January 2022, the entity incurred costs of P6,000,000 in relation to the development of a computer software product. The software cost was appropriately capitalized and amortized over 3 years for accounting purposes using straight line. However, the total amount was expensed in 2022 for tax purposes. The equipment was acquired on January 1, 2022, for P20,000,000. The useful life is 4 years with no residual value. The equipment is depreciated using the straight line for accounting purposes and sum-of-the-years’ digits (SYD) for tax purposes. In January 2022, the entity entered into an agreement with the employees to provide health care benefits. The cost of such plan for 2022 was P2,000,000 was accrued as expense in 2022 for accounting purposes. However, health care benefits are deductible for tax purposes only when actually paid. The pretax accounting income for 2022 is P13,000,000. The tax rate is 30% and there are no deferred taxes on January 1, 2022. |: Compute for the following— 1. Current tax expense for 2022. A. 2,400,000 C. 3,600,000 B. 3,300,000 D. 3,900,000 2. Deferred tax liability on December 31, 2022. A. Zero Cc. 1,200,000 B. 900,000 D. — 2/100,000 3. Deferred tax asset on December 31, 2022. A. Zero . 800,000 B. 600,000 D. 900,000 4. Deferred tax expense for 2022. A. Zero C. 1,500,000 B. 1,200,000 D. — 2/100/000 5. Total tax expense for 2022. A Zero C3, B. 2,400,000 D. oman 1758Chapter _- (Tutte) pROBLEM 43-3 Answers & Solutions Guide 3, ANSWER: A ee Carrying Ta amount beet EDAFTA) Computer software cost P4,000,000 a) 000) Equipment 15,000,000 12,000,000 (3,000/000) Accrued liability-health care 2,000,000 rs 2,000,000 Accounting income 13,000,000 Less: Future taxable amount (4M + 3m) (7,000,000) Add: Future deductible amount 2,000,000 Taxable income ~~ 8,000,000 X; Tax rate ___30% Current tax expense Future taxable amount arises from the following: ¥. Accounting income > Taxable income ¥_ Asset’s carrying amount > Asset’s tax base ¥ _ Liability’s carrying amount < Liability’s tax base Future deductible amount arises from the following: ¥ Accounting income < Taxable income Y Asset’s carrying amount < Asset’s tax base ¥ _ Liability’s carrying amount > Liability's tax base 2. ANSWER: D Deferred tax liability = Future taxable amount x Enacted tax rate Deferred tax liability = 7,000,000 x 30% Deferred tax liability = 2,100,000 3. ANSWER: B Deferred tax asset = Future deductible amount x Enacted tax rate Deferred tax asset = 2,000,000 x 30% Deferred tax asset = 600,000 4. ANSWER: C Future taxable amount 7,000,000 Less: Future deductible amount __(2,000,000, Net future taxable amount 5,000,000 X: Tax rate ____30%_ Deferred tax expense 1,500,000 5. ANSWER: D Current tax expense 2,400,000 Id: Deferred tax expense ___ 1,500,000_ Total tax expense 3,900,000 1759Comprehensive Accounting Reviewer Series Volume 1: Financial rtecounting and Reporting x Liabilit - eae eo oted ; pe tax are income of P400,000 for 2022. in the computation of income taxes, the following data were gathered: Dora ar Re for tax purposes in excess of depreciation a deducted for book purposes 25,000 ‘Tax payment made during 2022 50 Enacted tax rate What amount shall be reported as current tax liability? A 42,500 C. 70,000 B. 51,250 D. 78,750 P175,000 PROBLEM 43-4 Answers & Solutions Guide__ oe a ANSWER: A Pre-tax financial income 400,000 Less: Non-taxable gain (175,000) Income subject to tax 225,000 Less: Additional depreciation (25,000) Taxable income 200,000 X: Tax rate 35% Income tax expense — 2022 70,000 Less: Tax payments already made during 2022 __ (27,500) Current tax liability ‘42,500 PROBLEM 43-5 Creation and Reversal of Temporary Differences Refer to the following two independent situations: 7 Situation no. 1 Path Corp. has one temporary difference at the end of 2022 that will reverse and, cause taxable amounts of P1,100,000 in 2023, P1,200,000 in 2024, and P1,300,000 in 2025. The entity's pre-tax financial income for 2022 is P6,000,000 and the tax rate is 25% for all years There are no deferred tax asset nor liability at the beginning of 2022. 1. Compute for the current tax expense for the i year 2022. By Prepare the journal entry to record income tax expense for 2022. . Assume the pre-tax financial income for the year 2023 is P7,000,000, compute for the taxable income for the year 2023. 4. Prepare the journal entry to record income tax expense for 2023. Path Corp. has one temporary difference at the c e end of 2022 that wi nd cause scarab erate ot P1,100,000 in 2023, P1,200,000 in 2024, and PI 300,000 in 2025 pre-tax financial income for 2022 is P6,000,000 and the tax fate is 25% for all years. There are no deferred tax asset nor Ii expects profitable operations to continue in the tere een eae 1760Chapter _: (Tutte) pROBLEM 43-5 Answers & Solutions Guide a ANSWER: P600,000 pre-tax financial income Less: Future taxable amount (1.1M + 1.2M + 1.3m) aera Taxable income 2,400,000 X: Tax rate 35% Current tax expense 600,000" 2. ANSWER Income tax expense 1,500,000 Income tax payable 600,000 Deferred tax liability (3.6@ x 25%) 900,000 3. ANSWER: 8,100,000 Pre-tax financial income 7,000,000 Add: Taxable amount from 2022 __ 1,100,000 Taxable income 8,100,000 Note: The future taxable amount that was deducted from 2022 taxable income will become taxable in the future years, thus, will increase the taxable income of the future years. 4, ANSWER Income tax expense (7M x 25%) 1,750,000 Deferred tax liability (1.1 x 25%) 275,000 Income tax payable (8.1M x 25%) 2,025,000 Note: The deferred tax liability that arose in 2022 will reverse starting 2023. 1. ANSWER: P2,400,000 Pre-tax financial income 6,000,000 Add: Future deductible amount (1.1! + 1.2M + 1.3M) __3,600,000_ Taxable income 9,600,000 X Tax rate 25% Current tax expense 2,400,000 2. ANSWER Income tax expense 1,500,000 Deferred tax asset (3.6! x 25%) aaa Income tax payable es 3. ANSWER: rex financial income 7,000,008 7 Deductible amount from 2022 +_(1,100,000)_ ®xable income 5,900,000 . in 2022 taxable income will become rons The future deductible amount that was added tn 202 sabe boar ene ‘ible in the future years, thus, will decrease 1761| Comprchensive Hecounting Reviewer Series Uolame 1+ Financial rlecounting and Reporting 4. ANSWER Income tax expense (7M x 25%) 1,750,000 eee Deferred tax asset (1.1M x 25%) 1,475,000 Income tax payable (5.9M x 25%) Note: The deferred tax asset that arose in 2022 will reverse starting 2023. PROBLEM 43-6 Computation of income tax liability _ : Fhe accountant of Salas Corporation has been regularly filing the entity's quarterly income tax returns. However, differences between the taxable income and financial income are accounted for at year-end. For the year ended December 31, 2023, Salas Corporation reported pretax financial income of P1,000,000. Included in the pretax financial income was P180,000 of non-taxable Ife insurance received as a result of death of an officer; P240,000 of warranty expense accrued but unpaid as of December 31, 2023; and P40,000 of impairment loss on goodwill. The income tax rate is 30% for all years. Income taxes paid up to the 3rd quarter of 2023 amounted to P185,600. What amount should be reported as income tax payable on December 31, 2023? A. P72,400 C. p258,000 B. P 144,400 D. — P330,000 PROBLEM 43-6 Answers & Solutions Guide ANSWER: B Pre-tax financial income P1,000,000 Permanent differences: Less: Non-taxable life insurance settlement (180,000) Add: Impairment loss on goodwill 40,000 Income subject to tax _ P860,000 Temporary difference: ’ Add: Accrued warranty costs 240,000 Taxable income ' P1,100,000_ X: Current tax rate "30% Current income tax due ~~ 330,000 Less: Income taxes already paid (185,600) Income tax payable, 12/31/2023 Note: Impairment loss on goodwill is treated as a nondeductible expense for tax purposes 1762Chapter _: (Tutte) pROBLEM 43-7 Different Enacted Future jfole Company's pretax financial income fo th ee In preparing the income tax return for the current year, the tax acc i be 100,000, folowing differences between the financial income and taxable income eens ne « Non-taxable revenues, P70,000 pane Incomes « Non-deductible expenses, P200,000 « Taxable temporary difference, P350,000 + Deductible temporary difference, 200,000 The temporary differences are expected to reverse in the following patterns: Taxable temporary Deductible temporary difference dif a = na P70,000 100,000 5024 160,000 60,000 3025 120,000 40,000 350,000 200,000 The enacted tax rates for 2022 through 2025 are as follows: Year: Enacted tax rates: 2022 30% 2023 32% 2024 34% 2025 36% 1. How much is the taxable income for 2022? How much is the current income tax expense for 2022? How much is the deferred tax liability on December 31, 2022? How much is the deferred tax asset on December 31, 2022? How much is the total income tax expense to be reported for 2022? How much is the deferred tax liability on December 31, 2023? How much is the deferred tax I ity on December 31, 2024? How much is the deferred tax asset on December 31, 2023? How much is the deferred tax asset on December 31, 2024? eV Penau PROBLEM 43-7 Answers & Solutions Guide 1. ANSWER: P1,080,000 Pre-tax financial income 1,100,000 i Non-taxable revenues en : Non-deductil \seS juctible expen: 730,000 Income subject to tax Less: Taxable temporary differences (350,000) Add: Deductible temporary differences ____200,000_ Taxable income 1,080,000 2. ANSWER: P324,000 Trent income tax expense = Taxable income x Current tax rate Ment income tax expense = 1,080,000 x 30% rent income tax expense = 324,000 le tax expense 324,000 Tncome tax payable 324,000 Cu 1763, ‘ewer Series Comprchensive Aeesunting Reviewer Mole |; Financial Aeoanting a Rented 3, ANSWER: P120,000 2023 (70T x 32%) zn 2024 (1607 x 34%) eee 2025 (1207 x 36%) 43,200 Deferred tax liability, 12/31/2022 120,000 Journal entry: Income tax expense 120,000 A Deferred tax liability 120; 4, ANSWER: P66,800 2023 (1007 x 32%) 2024 (60T x 4%) 20,400 2025 (40T x 36%) 14,400 Deferred tax asset, 12/31/2022 66,800 32,000 Journal entry: Deferred tax asset 66,800 Income tax expense 66,800 5, ANSWER: P377,200 Current income tax expense (See 0. 2) 324,000 D ‘Add: Net deferred income tax expense (1207-66800) ___53,200_ D Total income tax expense 327,200 I 6. ANSWER: P97,600 No Deferred tax liability, 12/31/2022 120,000 Less: Amount reversed in 2023 (22,400) Deferred tax liability, 12/31/2023 97,600 Alternative solution: 2024 (1607 x 34%) 54,400 PRC 2025 (1207 x 36%) 43,200 ti Deferred tax liability, 12/31/2023 97,600 change ‘Journal entry: omy 4 Deferred tax lia 2,400 Income tax expense 22,400 em Note: Ifa taxable temporary difference reve i i decreases the Defer ears arpa es rseS during a specific period, it z. 7. ANSWER: P43,200 Stor fants Deferred tax liability, 12/31/2023 . 97,600 How Less: Amount reversed in 2024 (54,400) much Deferred tax liability, 12/31/2024 ie - 416 4,52 8. ANSWER: P34,800 Deferred tax asset, 12/31/2022 66,800 Less: Amount reversed in 2023 _62,600)_ Deferred tax asset, 12/31/2023 34.800 1764Chapter _: (Tutte) native solution ser (607 X 34%) ie pans (407 x 36%) ehzins, Deferred tax asset, 12/31/2023 Jee tax expense 32,000 Deferred tax asset 32,000 . If a deductible temporary difference reverses duri . the income tax expense for that period. ring a specific period, it increases 9. ANSWER: P14,400 peferred tax asset, 12/31/2023 34,800 Less: Amount reversed in 2024 (20,400) _ Deferred tax asset, 12/31/2024 14,400 Summary on creation and reversal of temporary differences: Creation Reversal Future taxable amount qDTL {ITE . jDTL ITE Future deductible amount DTA [ITE {DTA {ITE DIL- Deferred Tax Liability DTA- Deferred Tax Asset ITE - Income Tax Expense Note: * There is a direct relationship between deferred tax liability and income tax expense. + There is an inverse relationship between deferred tax asset and income tax expense. PROBLEM 43-8 Deferred taxes on revalued properties Bronze Company reported its 2023 current income tax expense at P4,424, The following changes in Bronze Company's assets and liabilities are a5 follows: ‘oun i) December 31.70 tax payable 680,000 , Deferred tax liability 336,000 480,000 tax,asset 160,000 400,000 preciation and the deferred tax asset Pecetered tax liability was caused by accelerated de| rentals received in advance. Yow mache Bronze Company's total income tmx exPeneS! a. P4,184,000 C._ P5,040,000 * P4,520,000 D. _ P5,280,000 1765op Reviewer Series Comprchensive Aecountins Aolame |: Financial Hecoanting and Reporting PROBLEM 43-8 Answers & Solutions Guide ANSWER: B ates Current income tax ae oe) 144,000) : Decrease in DTL (P4' nda Decrease in DTA (P400T ~ 1607) 240,000_ Total income tax expense 4,520,000 Creation Reversal Future taxable amount }DTL 1ITE Sore pele Future deductible amount {DTAJITE 1 DTL - Deferred Tax Liability DTA - Deferred Tax Asset ITE - Income Tax Expense Note: a ; «There is a direct relationship between deferred tax liability and income tax expense. ; * There is an inverse relationship between deferred tax asset and income tax expense. PROBLEM 43-9 Deferred taxes on revalued properties On December 31, 2023, Protsenko Company revalued its property and has recognized the increase from the revaluation in its financial statements. The carrying value of the propery before the revaluation was P7,350,000 and the revalued amount was P9,375,000. However, the tax base of the property was only P6,187,500. The income tax rate is 30%. What is the deferred tax asset or liability on December 31, 2023? A. P348,750 asset C. — P956,250 asset B. 348,750 liability D. — P956,250 liability PROBLEM 43-9 Answers & Solutions Guide ANSWER: D Revalued amount P9,37:! Less: Tax base of the property 6 +87, 500) Increase in value P: X: Tax rate . ee Deferred tax lial ty, 12/31/2023 P956,250 Note: The result is deferred tax liability be i = leferred ecause the value of the pr increases however, the increase is considered an unrealized gain because the reper sae used, Hence; the increase is considered a future taxable amount which will result tt Teation of deferred tax liability that will reverse in the subsequent years 1766Chapter» (Tutte) OBLEM 43-10 Comprehensive; Different tax rates year 2022, Manheim Company reported pre-tax financial income of P13,500,000 ying the i income tax. The company revealed the following information for the current year: income on municipal bonds 1,050,000 Infrgurance annual premium (Manheim Company i the oo iciary of this insurance policy) 150,000 ax penalties and surcharges 60,000 Peation claimed on income tax return 4,050,000 Depreciation per accounting records 2,100,000 Rental payments made in advance 600,000 provisions for probable losses 150,000 Warranty expense on the accrual basis 900,000 ‘actual warranty payment 300,000 ‘Advance collections from customers 300,000 Income tax rate for the year 2022 30% income tax rate for taxable years 2023 onwards 35% 1, How much is the taxable income? 2. How much is the current income tax expense? 3. What amount shall be presented as deferred tax liability on December 31? 4. What amount shall be presented as deferred tax asset on December 31? 5, How much is the total income tax expense? PROBLEM 43-10 Answers & Solutions Guide a 1. ANSWER: P11,160,000 Pre-tax financial income 13,500,000 Permanent differences— ‘Non-taxable revenues Interest income on municipal bonds (1,050,000) Non-deductible expenses Life insurance premium 150,000 Tax penalties and surcharges ____ 60,000 __210,000_ Income subject to tax 12,660,000 Temporary differences- Future taxable amounts Additional depreciation (4.05M - 2.1M) (1,950,000) Prepaid rentals (600,000) (2,550,000) Future deductible amounts Provision for probable losses 150,000 Accrued warranty (9007 - 3007) 600,000 25000 Advance collections from customers _—300,000_ ‘axable income 11,160,000 2. ANSWER: P3,348,000 Current income tax expense "Taxable income x Current tax rate Lrrent income tax expense = 11,160,000 x 30% rent income tax expense = 3,348; 3. < Deere tn WER: P892,500 nt x Enacted future tax rate Ted tax liability = Future taxable amou ores tax liability = 2,550,000 x 35% red tax liability = 892,500 1767 iComprchensive Heeorating Reviewer Series Uotume |: Financial Accounting andl Reporting 4. ANSWER: P367,500 Deferred tax asset = Future deductible amount x Enacted future tax rate Deferred tax asset = 1,050,000 x 35% Deferred tax asset = 367,500 5. ANSWER: P3,873,000 e 3,348,000 Current income tax expense }, 348 i income tax expense (892,500 — 367,500) __, 525,000 ‘Add: Deferred Total income tax expense PROBLEM 43-11 Comprehensive; Operating loss carryforward _ ‘ADI Co. started to manufacture in 2022 copy machines that are sold on installment basis. The entity recognized revenue when equipment is sold for financial reporting purposes and when installment payments are received for tax purposes. In 2022, the entity recognized revenues of P6,000,000 for financial reporting purposes and P1,500,000 for tax purposes. The entity guaranteed the copy machines for 2 years. Warranty costs are recognized on the accrual basis for financial accounting purposes and when paid for tax purposes. Warranty expense accrued in 2022 if P2,500,000, but only P500,000 of warranty is paid in 2022. In addition, during 2022, P500,000 interest, net of 20% final income tax, was received and earned and P100,000 insurance premium on life insurance policy that covered the life of the president was paid. The entity is the beneficiary of the policy. Pretax accounting income in 2022 was P2,000,000, Any operating loss for 2022 will be carried to 2023. The tax rate is 30%. Required: Compute for the following- 1. Current tax expense for the current year. A Zero C. 480,000 B. 270,000 D. 870,000 2. Deferred tax asset on December 31, 2022, A Zero C. 600,000 B. 330,000 D. 870,000 3. Deferred tax liability on December 31, 2022. A. 600,000 C.. 1,350,000 B. 1,140,000 D. 1,950,000 4. Total tax expense for the current year. A Zero C. 480,000 | B. 270,000 D. 870,000 1768pROBLEM 43-1 Answers & Solutions Guide JA ANSWER: A en inting income ' 2,000,000 Less: Interest income subjected to final tax (500,000) dd: Life insurance premium paid 100,000 Income subject to tax 1,600,000 Less: Future taxable amount (6M — 15M) (4,500,000) Add: Future deductible amount (2.5 - S007) 2,000,000 Taxable income (operating loss carryforwara) (900,000) ince the result of operations is an Operating loss for tax Purposes, the current tax expense will be zero. 2. ANSWER: D Future deductible amount 2,000,000 ‘Add: Operating loss carryforward 900,000 Total future deductible amount 2,900,000 X: Tax rate 30% Deferred tax asset 870,000 3. ANSWER: C Deferred tax liability = Future taxable amount x Enacted tak rate Deferred tax liabilt 4,500,000 x 30% Deferred tax liability = 1,350,000 4, ANSWER: C Current tax expense - Increase in deferred tax liability 1,350,000 less: Increase in deferred tax asset __ (870,000) Total tax expense 480,000 Note: The entity will still report an income tax expense even if the current tax expense is 2210 because of the future taxable amounts that arose during the current period. PROBLEM 43-12 Comprehensive; Operating loss carryforward family Company prepared a reconciliation between pretax financial income and taxable on December 31, 2023, the end of its first year of operations. Accounting income 1,200,000 Rent collected in advance 400,000 depreciation in excess of book depreciation _(1,800,000)_ le income (P200,000) ‘Re sefered tax asset resulting from the operating lass caryforward is believed tobe 100% “lable. The income tax rate is 30%. 1. What is the income tax expense (benefit) for the year 2023? A Zero C._ P360,000 8. P120,000 D. 420,000 1769Comprchensive Accounting Reviewer Sees Alama 1: Financial recounting and Reported tion except that the deferred tax asset formation. tarryforward is believed to be gore 2. Assume the same inform i ting loss resulting from the oper tax expense (benefit) for the year 202 realizable, what is the income tax ove fs A Zero . B, — P120,000 Dp. 372,000 PROBLEM 43-12 Answers & Solutions Guide 1, ANSWER: C Current tax expense a rae Deferred tax expense (1.8M x 30%) 0 Deferred tax benefit [(400T + 2007) x 30%] ___(180,000) Income tax expense — 2023 2. ANSWER: D ; Current tax expense 540,000 Deferred tax expense (1.8M x 30%) , Deferred tax benefit [(400T x 30%) + {(200T x 80%) x 30%}] _(168,000 Income tax expense — 2023 Note: Deferred tax asset shall be recognized for all deductible temporary differences and operating loss carryforward to the extent realizable. PROBLEM 43-13 Comprehensive; Two periods McArthur Company reported pretax financial income of P5,850,000 and P7,380,000 for the years 2023 and 2024, respectively. The tax bases for its assets and liabilities on December 31, 2023, and December 31, 2024, were equal to their carrying amounts except for property, plant and equipment and provision for warranty. Equipment, costing P3,600,000 with estimated residual value of P360,000 and estimated useful life of 8 years, was acquired on January 1, 2023. This asset was depreciated using straight-line method for financial reporting purposes and sum-of-the-years' digits method for tax purposes. , For years 2023 and 2024, the company recorded warranty expense in its books amounting to P292,500 and P387,000, respectively. However, actual warranty expenditures were posted in the accounts amounting to P261,000 and P297,000 for years 2023 and 2024, respectively. There are no other temporary differences during the two-year period. Income tax rate for all years is 30%. 1. What are the taxable amount 1 wht) ores c ts for the years 2023 and 2024, A. P5,566,500 and P7,245,000 B. 5,850,000 and P7,380,000 CC. P6,133,500 and P7,515,000 D. 6,196,500 and P7,695,000 2. How much was the current jiabil Pt mae we Sor on ran 22x Hat on December 31, 2023, and A. P1,669,950 and P2,173,500 B. P1,755,000 and P2,214,000 C. P1,840,050 and 2,254,500 D. P1,858,950 and P2,308,500 1770Chapter _: (Taate) 3, How much was the deferred tax tia ility on December 31, 2023, and December 31, 2024, respectively? ‘A. P9,450 and P94,500 B. 40,500 and P162,000 CC. P94,500 and P162.000 D. P162,000 and P94's00 4, How much was the deferred tax asset on December 31, 2023, and December 31, 2024, respectively? A, P36,450 and P9,450, B. P9,450 and P36,450 C. P9,450 and P94,500 D. P36,450 and P162,000 5. Whatare the after-tax Profits for the years 2023 and 2024, respectively? A. P4,265,100 and 5,247,000 B. _ P4, 180,050 and P5,206'500 CC. P4,095,000 and P5,166,000 D. P5,850,000 and P7,380,000 PROBLEM 43-13 Answers & Solutions Guide 1. ANSWER: A ‘Depreciation expenses under accounting and tax: 2023 2024 Straight-line depreciation (accounting) P405,000* 405,000 SYD depreciation (tax) P720,000** P630,000*** Excess of tax depreciation over accounting depreciation P315,000 225,000 *1(P3.6M — P360T//8] = 405,000 “SYD = fInnt+ 2} > {18(8+1)]/2} > [8 x 9/2] D 36; [(P3.6m - P360T) x 8/36] = P720,000 *“(P3.6M — P360T) x 7/36] = P630,000 Warranty costs 2023 2024 peed warranty expense 292,500 387,000 Sl warranty expenditures 261/000 297,000 4 warranty costs 31,500 90,000 2023 2024 PE Financial income P5,850,000 7,380,000 i of '&x depreciation over ‘accounting depreciation (Fra) (315,000) (225,000) Warranty costs (FDA) 31,500 90,000 Texable income 5,566,500 P7,245,000 2 ANSWER: a Te 2023 2024 xeeue income P5,566,500 P7,245,000 Cun Tent tax rate 30% = 30% ‘ax liability, 12/31 P1,669,950 XSComprohensive Accounting Rewiewor Sorter Aolame 1: Financial Accounting and Reporting 3. ANSWER: C 2023 Poa Cumulative excess of tax depreciation over ‘accounting depreciation Bo " eon X: Enacted tax rate 30% ____ 30% Deferred tax liability, 12/31 162,000 4. ANSWER: B 2023 2024 Cumulative accrued warranty costs (FDA) 31,500 P121,500 X: Enacted tax rate 30% 30% Deferred tax asset, 12/31 9,450 P36,450 5. ANSWER: C 2023 2024 Pre-tax financial income P5,850,000 7,380,000 Less: Total income tax expense Current tax expense (1,669,950) (2,173,500) Deferred tax expense (94,500) (67,500)* Deferred tax benefit 9,450 27,000** After-tax profits 4,095,000 5,166,000 *P225,000 x 30% = P67,500 **P90,000 x 30% = P27,000 -End of Chapter- 1772