XERCISE 49.15 (20-25 minutes) 3) Income Tax Expense Deferred Tax Asset. Income Taxes yi Income Tax Expense... Deferred Tax Asset (€200,000 — €20,000). 1) Income Tax Expense Deferred Tax Asset. income Taxes Payable Income Tax Expense Deferred Tax Asset 290,000 50,060 340,000 480,000 480,000 290,000 56,900 340,000 200,000 260,900 12,Sioom AP, Ditty Comple, Tine. 2028, AACSB: Anat, AICPA BO Cites! Tnning, ACPA FC Repertng AICPA PC Problem Sohang 1905EXERCISE 19.16 (15-20 minutes) (a) Future Years 20202021 otal Future taxable (deductible) p amounts $1,000,000 $1,000,000 $2,000,009 Tax rate X 40% X__34% Deferred tax lability (asset) $400,000 $340,000 §_740,009 “The prior tax rate of 40% is computed by dividing the $800,000 balance of the deferred tax liability account at January 1, 2019, by the $2,000,000 cumulative temporary difference at that same date. The deferred tax liability balance of $740,000 is reported as a non- current liability on the 2019 statement of financial position. 60,000 {b) Deferred Tax Liability Income Tax Expense. 60,000. There are no changes during 2019 in the cumulative temporary difference, The entire change in the deferred tax liability account is due to the change in the enacted tax rate. That change is computed as. follows: $ 740,000 (computed in (a)) Deferred tax liability at the beginning of 2019 (800,000) Deferred tax benefit for 2019 due to change in enacted tax rate (decrease in deferred tax liability required)... $60,000) (c) Income before income tax $5,000,000* Income tax expense Currer $2,000,000" Adjustment due to change in tax rate (60,000) _1,940,000 Net income... $3,080,000 *Pretax financial income is equal to the taxable income for 2019 because there were no changes in the cumulative temporary difference and no permanent differences. alEXERCISE 19.16 (Continued) “Taxable income for 2049 .. x 49% Tax rate for 2019 (computed in (a) . Taxes Payable for $2,000,000. $5,000,000EXERCISE 19.23 (30-35 minutes) fa) 2017 Income Tax Expense ... Income Taxes Payable (£110,000 X 34%).. 2018 Income Tax Expense Income Taxes Payable (£90,000 X 34 2019 Income Tax Refund Receivable Deferred Tax Asse! Benefit Due to Loss Carryback Benefit Due to Loss Carryforward .. *[34% X £(110,000)] + [34% X (90,000) **38% X (£260,000 — £110,000 ~ £90,000) = £22,800 2020 income Tax Expense ... Income Taxes Payable. Deferred Tax Asset.. *[(€220,000 ~ £60,000) X 38%] {b) Operating loss before income taxes .. Income tax benefit Benefit due to loss carryback .. Benefit due to loss carryforward. Net loss... () 2019 Income Tax Refund Receivable Deferred Tax Asset.. Benefit Due to Loss Carryback Benefit Due to Loss Carryforward *[34% X £(110,000)] + [34% X £(90,000)] = £68,000 3 37,400 37,400 30,600 30,600 68,000 22,800 68,000 22,800" 83,500 60,800" 22,800 £(260,000) £68,000 22,800 __90,800 Eii69,200) 68,000 17,100 68,000" 17,400" % X [(€ 260,000 ~ £110,000 - £90,000)] X 3/4 = £17,100EXERCISE 19.23 (Continued) 2020 Income Tax Expense 83,500 Deferred Tax Asset om 47,100 Benefit Due to Loss Carry {€60,000 X .38 X 1/4) 5,700 Income Taxes Payable [{€220,000 - £60,000) X 38%). 60,800 (4) Operating loss before income taxes .. £(280,000) income tax benefit Benefit due to loss carryback £68,000 Benefit due to loss carryforward. 17,400 __85,100 Net 1085 ssn #fi74.s00) Note: Using the assumption in part (a), the income tax section of the 2020 income statement would appear as follows: Income before income taxes... £220,000 Income tax expense Current ne” £60,800 Deferred, 22,800 __83,500 Net income: £36,400 Note: Using the assumption in part (c), the income tax section of the 2020 income statement would appear as follows: Income before income taxes... £220,000 Income tax expense Current £60,800 Deferred. 22,800 Benefit d 5.700) __77,900 Net income... Ei42.100EXERCISE 19.24 (30-35 minutes) @ 2017 Income Tax Expen: 40,000 Income Taxes Payable (€100,000 X 40%) 36,000 Income Tax Refund Receivable 76,000 Deferred Tax Asset... 41,250 Benefit Due to Loss Carryback.. Benefit Due to Loss Carryforward, +*[40% X €(100,000)] + [40% X €(90,000)] = €76,000 +*45% X [(€240,000 — €100,000 - €90,000)] X 1/2 = €11,250 2020 Income Tax Expense ... 54,000 Deferred Tax Asset. Benefit Due to Loss Carryforward Income Taxes Payable [(€120,000 - €50,000) x 45%). (b) Operating loss before income taxes ... Income tax benefit Benefit due to loss carryback €76,000 Benefit due to loss carryforward ; 44,250 Net loss. . (c)_ Income before income taxe: Income tax expense Current.. €31,500 Deferred.. 41,250 Benefit due 14,250 Net income... 40,000 36,000 76,000" 11,250" 11,250 11,250 31,500 €(240,000) 87,250 €(452,750) € 120,000 54,000 86,000 10 24,brom A, ety Conn Tin 3038, MCSE An ACPA BO Cte Ting ACPAIC Rape, PAPE: Pate Slsf@) PROBLEM 19.4 ‘Schedule of Pretax Financial Income and Taxable Income for 2019 $750,000 (4,000) Pollution fines é 4,200 750,200 Temporary differences Depreciation expense (30,000) Installment sales ($100,000 - $75,000). (25,000) Warranty expense ($50,000 - $10,000). 40,000 Taxable incom $235,200 * Depreciation for books ($300,000/5) $60,000 Depreciation tax return ($300,000 X 30%) = _90,000 Difference $30,000 ‘The income taxes payable for 2019 is as follows: Taxable income $735,200 Tax rate X_30% Income taxes payable $220,560 ‘The computation of the deferred income taxes for 2019 is as follows: Temporary difference: Depreciation expense $(30,000) x 30% Installment sales ($100,000 - $75,000) (25,000) X 30% Warranty expense ($50,000-$10,000) 40,000 X 30% (8,000) DTL (7,500) OTL 12,000 DTAPROBLEM 19.4 (Continued) (b) The journal entry to record income taxes payable, income tax expense and deferred income taxes is as follows: Income Tax Exper 225,060" Deferred Tax Asset. 12,000 Deferred Tax Liability ($9,000 + $7,50 16,500 Income Taxes Payabl 220,560 *Deferred tax expense for 2019 (from deferred tax liability) ($9,000 + $7,500).... § 16,500 Deferred tax benefit for 2019 (from deferred tax asset). (12,000) Net deferred tax expense for 201 4,500 Current tax expense for 2019 (income taxes payal 220,560 Income tax expense for $225,050 1.0 12,.00m ay Mae. 8 ME ec PAE CT NEFF Reng CPAP rt ng aPROBLEM 19.8 (a) ‘Temporary Future Taxable Tax Deferred Tax Difference (Deductible) Rate (Asset) Liability ‘Amounts Depreciation ¥120,000,000" 40% $48,000,099 *(Computation shown on next page.) Non-current Deferred tax ability ¥48,000,009 (b)_ Income Tax Expense :. 178,000,000 Deferred Tax Liability 48,000,000 , 130,000,000 ¥130,000,000 taxes due for 2018 + 40% 2018 tax rate = ¥325,000,000 taxable income for 2018. Taxable income for 2018 325,000,000 Tax rai “ x 40% Income taxes payable for + 730,900,009 Deferred tax liability at the end of 2018. Deferred tax lia the beginning of ¥ 48,000,000 0 Deferred tax exy for 2018 (increase in deferred tax liability) 48,000,000 * Current tax expense for 2018 (Income taxe: payable) 430,000,009, Income tax expense for 2018.. ¥178,000,000 (c) Income before income taxes.......... ¥445,090,000° Income tax expense Current.. ¥130,000,000 48,000,000 _ 178,000,900 287,000,009 ¥ 4 420,000,006" Taxable income [from (b) above] ¥325,000,000 ioPROBLEM 19.8 (Continued) Solving for X; X ~ ¥420,000,000 = ¥325,000,000; X = ¥445,000,000 pretax financial income. Book Depreciation Tax Depreciation _*Difference 2018 ¥120,000,000 ¥240,000,000" __¥(120,000,000) 2019 420,000,000 144,000,000 (24,000,000) 2020 420,000,000 86,400,000 33,600,000 2021 120,000,000 64,800,000" 55,200,000 2022 420,000,000 64,800,000 55,200,000 Totals 600,000,000 600,000,000 x —__o *(4600,000,000 - 0) X (1+ 5)X2 '**(#600,000,000 — ¥240,000,000 ~ ¥144,000,000 ~ ¥86,400,000) + 2 yrs. td) 2 Future Taxable Temporary (Deductible) Tax Deferred Tax Difference ‘Amounts Rate (Asset) Liabill Depreciation '¥144,000,000 40% ¥57,600,000 ‘Unearned rent (75,000,000) 40% ¥ (30,000,000) Unearned rent (75,000,000) 40% __(30,000,000) Totals ¥_(6,000,000) (60,000,000) — ¥57,600,000 Temporary . __Resulting Deferred Tax Difference (Asset) Liability Depreciation ¥¥57,600,000 Unearned rent (30,000,000) Unearned ront (30,000,000) Totals (60,000,000) —_¥57,600,000 Other assets (non-current! Deferred tax asset. ¥2,400,000 waPROBLEM 19.8 (Continued) (e) ( Income Tax Expense .. 53,600,000 Deferred Tax Asset. 60,000,000 Income Taxes Payable. Deferred Tax Liability... ¥104,000,000 taxes due for 2019 + 40% 2019 tax rate = ¥260,000,000 taxable income for 2019, Taxable income for 2019... Tax rate for 2019 Income taxes payable for Deferred tax asset at the end of 2019. Deferred tax asset at the beginning of 201 Deferred tax benefit for 2019 (increase in deferred tax asset).... Deferred tax expense for 2019 (¥24,000,000 X .40) Deferred tax benefit for 201 Current tax expense for 2019 (Income taxes payable) Income tax expense for 2019... Income before income taxe! Income tax expense ¥104,000,000 (50,400,000) Excess rent collected over rent recognized. Excess depreciation (from schedule above) Taxable income [from (e) above]. Solving for Y: Y + ¥150,000,000 ~ ¥24,000,000 = ¥260,000,000 Y = 4260,000,000 ~ ¥150,000,000 + ¥24,000,000 Y = 134,000,000 104,000,000 9,600,000 260,000,000 40% 104,000,000 ¥ 60,000,000 0 460,000,000) ¥ 9,600,000 (60,000,000) 104,000,000 {600,000 ¥134,000,000° 53,600,000 ¥50,400,000 ¥ Y 150,000,000 (24,000,000) 250,000,000 cdPROBLEM 19. {a) Pretax financial income.. €100,000 Permanent differences: Fine for pollution. 3,500 Tax-exempt interest (1,500) Originating temporary difference: Excess warranty expense per books (€7,000 - €2,000)... 5,000 Excess construction profits per books (€82,000 - €67,000).. (25,000) Excess depreciation per tax return (€80,000 - €60,000).. (20,000) ‘Taxable income. ©s2.000 (b) ‘Temporary Future Taxable Tax _Deferred Tax Difference ‘Amounts Rate (Asset) Liability Warranty costs 40% €(2,000) Construction profits 40% €10,000 Depreciation 40% 8,000 Totals 2000) | Eie,000" "Because of a flat tax rate, these totals can be reconciled: €40,000 X 40% = €(2,000) + €18,000. 40,800 (c) Income Tax Expense 2,000 Deferred Tax Asset Deferred Tax Income Taxes Payable come for 2019 [answer part (a). Taxable Tax rate. Income taxes payable for 2019..... Deferred tax liability at the end of 2019 [part (b)].. Deferred tax liability at the beginning of 2019... Deferred tax expense for 201 18,000 24,600 €62,000 X_40% $24,800 €18,000 0PROBLEM 19.9 (Continued) (@) Lo 124 Been 4? ony: camps Tne 8 AACS Ane NEPA Deferred tax asset at the end of 2019. Deferred tax asset at the beginning o Deferred tax benefit for 2019. Deferred tax expense for 2019. rred tax benefit for 2019... Net deferred tax expense for 2019. Current tax expense for 2019 (Income taxes payable)... Deferred tax expense for 2019 Income tax expense for 2019... Income before income taxes. Income tax expense Current €24,800 Deferred - 16,000 Net income € 2,000 ae | £12,000) € 18,000 2,000) €46,000 € 24,800 46,000 ‘£40,800 €100,009 40,800 €59,200