The following information has been obtained for the gocker corporation

CHAPTER 19

1.Oxford Corporation began operations in 2012 and reported pretax financial income of $227,110 for the year. Oxford’s tax depreciation exceeded its book depreciation by $39,100. Oxford’s tax rate for 2012 and years thereafter is 30%. In its December 31, 2012, balance sheet, what amount of deferred tax liability should be reported?

Deferred tax liability to be reported

$http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Excess depreciation on tax return

$39,100

Tax rate

x 30

%

Deferred tax liability

$11,730

2. At December 31, 2012, Percheron Inc. had a deferred tax asset of $36,670. At December 31, 2013, the deferred tax asset is $61,870. The corporation’s 2013 current tax expense is $61,730. What amount should Percheron report as total 2013 tax expense?

Total income tax expense for 2013

$http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Deferred tax asset, 12/31/13

$61,870

Deferred tax asset, 12/31/12

36,670

Deferred tax benefit for 2013

(25,200

)

Current tax expense for 2013

61,730

Total income tax expense for 2013

$36,530

3. Conlin Corporation had the following tax information.

Year

Taxable Income

Tax Rate

Taxes Paid

2010

$308,100

40%

$123,240

2011

$334,000

35%

$116,900

2012

$407,000

35%

$142,450

In 2013, Conlin suffered a net operating loss of $478,400, which it elected to carry back. The 2013 enacted tax rate is 34%. Prepare Conlin’s entry to record the effect of the loss carryback. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Benefit Due to Loss Carryback = $116,900 + [($478,400 – $334,000) x 35%] = $167,440

4.

Starfleet Corporation has one temporary difference at the end of 2012 that will reverse and cause taxable amounts of $57,100 in 2013, $63,520 in 2014, and $80,780 in 2015. Starfleet’s pretax financial income for 2012 is $445,620, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2012.

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

(a) and (b)

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(a) Compute taxable income and income taxes payable for 2012.

Taxable income

$http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Income taxes payable

$http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2012. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

(a)

Pretax financial income for 2012

$445,620

Temporary difference resulting in future taxable

amounts in 2013

(57,100

)

in 2014

(63,520

)

in 2015

(80,780

)

Taxable income for 2012

$244,220

Taxable income for 2012

$244,220

Enacted tax rate

30

%

Income taxes payable for 2012

$73,266

(b)

Future Years

2013

2014

2015

Total

Future taxable (deductible) amounts

$57,100

$63,520

$80,780

$201,400

Tax rate

x 30%

x 30%

x 30%

Deferred tax liability (asset)

$17,130

$19,056

$24,234

$60,420

Deferred tax liability at the end of 2012

$60,420

Deferred tax liability at the beginning of 2012

0

Deferred tax expense for 2012 (increase in deferred tax liability)

60,420

Current tax expense for 2012 (Income taxes payable)

73,266

Income tax expense for 2012

$133,686

5. Complete the following statements by filling in the blanks.

(a)

In a period in which a taxable temporary difference reverses, the reversal will cause taxable income to be http://edugen.wileyplus.com/edugen/art2/common/pixel.gifpretax financial income.

(b)

If a $78,670 balance in Deferred Tax Asset was computed by use of a 40% rate, the underlying cumulative temporary difference amounts to $http://edugen.wileyplus.com/edugen/art2/common/pixel.gif.

(c)

Deferred taxes http://edugen.wileyplus.com/edugen/art2/common/pixel.gifrecorded to account for permanent differences.

(d)

If a taxable temporary difference originates in 2013, it will cause taxable income for 2013 to be http://edugen.wileyplus.com/edugen/art2/common/pixel.gifpretax financial income for 2013.

(e)

If total tax expense is $57,590 and deferred tax expense is $74,500, then the current portion of the expense computation is referred to as current tax http://edugen.wileyplus.com/edugen/art2/common/pixel.gifof $ http://edugen.wileyplus.com/edugen/art2/common/pixel.gif.

(f)

If a corporation’s tax return shows taxable income of $110,080 for Year 2 and a tax rate of 40%, how much will appear on the December 31, Year 2, balance sheet for “Income taxes payable” if the company has made estimated tax payments of $35,240 for Year 2? $ http://edugen.wileyplus.com/edugen/art2/common/pixel.gif.

(g)

An increase in the Deferred Tax Liability account on the balance sheet is recorded by a http://edugen.wileyplus.com/edugen/art2/common/pixel.gifto the Income Tax Expense account.

(h)

An income statement that reports current tax expense of $86,710 and deferred tax benefit of $29,250 will report total income tax expense of $ http://edugen.wileyplus.com/edugen/art2/common/pixel.gif.

(i)

A valuation account is needed whenever it is judged to be http://edugen.wileyplus.com/edugen/art2/common/pixel.gifthat a portion of a deferred tax asset http://edugen.wileyplus.com/edugen/art2/common/pixel.gifrealized.

(j)

If the tax return shows total taxes due for the period of $79,740 but the income statement shows total income tax expense of $57,680, the difference of $23,570 is referred to as deferred tax http://edugen.wileyplus.com/edugen/art2/common/pixel.gif.

(b)

($78,670 divided by 40%)

=

$196,675

(f)

[($110,080 x 40%) – $35,240]

=

$8,792

(h)

($86,710 – $29,250)

=

$57,460

6. The pretax financial income (or loss) figures for Synergetics Company are as follows.

2008

$176,400

2009

259,100

2010

81,900

2011

(176,400

)

2012

(386,700

)

2013

134,500

2014

106,400

Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 40% tax rate for 2008 and 2009 and a 35% tax rate for the remaining years. Prepare the journal entries for the years 2010 to 2014 to record income tax expense and the effects of the net operating loss carrybacks, and carryforwards, assuming Synergetics Company uses the carryback provision. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.) (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

2010

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

2011

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

2012

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

(To record carryback.)

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

(To record carryforward.)

2013

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

2014

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

2010

Income Taxes Payable

=

($81,900 x 35%)

=

$28,665

2011

Income Tax Refund Receivable

=

($176,400 x 40%)

=

$70,560

2012

Benefit Due to Loss Carryback (Income Tax Expense)

=

($81,900 x 35%)

=

$28,665

Benefit Due to Loss Carryforward (Income Tax Expense)

=

[($386,700 – $81,900)x35%]

=

$106,680

2013

Deferred Tax Asset

=

($134,500x35%)

=

$47,075

2014

Deferred Tax Asset

=

($106,400 x 35%)

=

$37,240

7.

The following information has been obtained for the Gocker Corporation.

1.

Prior to 2012, taxable income and pretax financial income were identical.

2.

Pretax financial income is $1,704,400 in 2012 and $1,427,500 in 2013.

3.

On January 1, 2012, equipment costing $1,292,000 is purchased. It is to be depreciated on a straightline basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Hint: Use the half-year convention for tax purposes, as discussed in Appendix 11A.)

4.

Interest of $66,800 was earned on tax-exempt municipal obligations in 2013.

5.

Included in 2013 pretax financial income is an extraordinary gain of $202,500, which is fully taxable.

6.

The tax rate is 36% for all periods.

7.

Taxable income is expected in all future years.

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

(a)

http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Compute taxable income and income taxes payable for 2013.

Taxable income

$http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Income taxes payable

$http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Book Depreciation

Tax Depreciation

Difference

2012

$161,500

$129,200

*

$32,300

2013

161,500

258,400

(96,900

)

2014

161,500

258,400

(96,900

)

2015

161,500

258,400

(96,900

)

2016

161,500

258,400

(96,900

)

2017

161,500

129,200

*

32,300

2018

161,500

0

161,500

2019

161,500

0

161,500

Totals

$1,292,000

$1,292,000

$ 0

*($1,292,000 ÷ 5) x 0.5

Pretax financial income for 2013

$1,427,500

Nontaxable interest

(66,800

)

Excess depreciation ($258,400 – $161,500)

(96,900

)

Taxable income for 2013

$1,263,800

Tax rate

36

%

Income taxes payable for 2013

$454,968

8. Which of the following is false regarding accounting for deferred taxes under IFRS?

Tax effects of certain items are recognized in equity.

The rate used to compute deferred taxes is either the enacted tax rate, or a substantially enacted tax rate (virtually certain).

A deferred tax liability is classified as current or noncurrent based on the classification of the asset or liability to which it relates.

A deferred tax asset is recognized up to the amount that is probable to be realized.

9. With regard to recognition of deferred tax assets, IFRS requires

Approach

Recognition

Impairment approach

Recognize an asset up to the amount that is probable to be realized

Affirmative judgment

Recognize an asset up to the amount that is probable to be realized

Impairment approach

Recognize asset in full, reduced by valuation allowance if it’s more likely than not that all or a portion of the asset won’t be realized

Affirmative judgment

Recognize asset in full, reduced by valuation allowance if it’s more likely than not that all or a portion of the asset won’t be realized