Psalm Company’s income statement for the year ended December 31,2024 shows a pretax income of 2,000,000.
The
following items are treated diBerently on the tax returns and on the accounting records:
Financial Accounting Income Tax Return
Rent expense 200,000 0
Depreciation expense 500,000 800,000
Interest on government bonds 50,000 0
Income tax rate is 25%.
1. How much is the current portion of Psalm’s income tax expense?
2. How much is the total income tax expense?
3. How much is the DTL?
4. How much is the DTA?
5. How much is the Net Income?
Jasco Company is in its first year of operations. The entity has pretax income of 4,000,000. The entity has the following items
recorded in its records:
Premium on life insurance of key oBicers 100,000
Depex on tax return in excess of book depex 120,000
Interest on exempt government bonds 53,000
Warranty Expense 40,000
Actual warranty repairs 32,000
Bad debt expense 14,000
ADA, beg 0
ADA, end 8,000
Rent received in advance – recognized evenly
over the next three years 240,000
Income tax rate is 25%.
1. What is the taxable income for the current year?
2. How much is the current income tax expense?
3. How much is the total income tax expense?
4. How much is the DTL?
5. How much is the DTA?
6. How much is the Net Income?
On January 2, 2024, Callaway Company acquired a machinery at a cost of 2,000,000. The Machinery has estimated life of 20
years. It is the company’s policy to depreciate the asset on a straight-line basis for financial purposes. Tax legislation authority
allows depreciation to be deducted on a double declining balance method. On December 31, 2024, Callaway Company
recognized an impairment loss of 400,000 on the machinery.
1: What is the amount of temporary diBerence relating to the asset?
2: If the current and future tax rates are 25% and 20% respectively, what amount of deferred tax liability should the company
recognize?