Question & Answer

At December 31, 2014, Percheron Inc. had a deferred tax asset of $30,000. At December 31, 2015, the deferred tax asset is $59,000. The corporation’s 2015 current tax expense is $61,000. What amount should Percheron report as total 2015 income tax expense?

At December 31, 2014, Suffolk Corporation had an estimated warranty liability of $105,000 for accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 40%. Compute the amount Suffolk should report as a deferred tax asset at December 31, 2014.

At December 31, 2014, Appaloosa Corporation had a deferred tax liability of $25,000. At December

31, 2015, the deferred tax liability is $42,000. The corporation’s 2015 current tax expense is $48,000. What amount should Appaloosa report as total 2015 income tax expense?

Using the information from BE19-2, assume this is the only difference between Oxford’s pretax financial income and taxable income. Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable, and show how the deferred tax liability will be classified on the December 31, 2014, balance sheet.

Oxford Corporation began operations in 2014 and reported pretax financial income of $225,000 for the year. Oxford’s tax depreciation exceeded its book depreciation by $40,000. Oxford’s tax rate for 2014 and years thereafter is 30%. In its December 31, 2014, balance sheet, what amount of deferred tax liability should be reported?

In 2014, Amirante Corporation had pretax financial income of $168,000 and taxable income of $120,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40%. Compute the amount to be reported as income taxes payable at December 31, 2014.

What is an uncertain tax position, and what are the general guidelines for accounting for uncertain tax positions?

What controversy relates to the accounting for net operating loss carryforwards?

What are the possible treatments for tax purposes of a net operating loss? What are the circumstances that determine the option to be applied? What is the proper treatment of a net operating loss for financial reporting purposes?

Differentiate between “loss carryback” and “loss carryforward.” Which can be accounted for with the greater certainty when it arises? Why?

What are some of the reasons that the components of income tax expense should be disclosed and a reconciliation between the effective tax rate and the statutory tax rate be provided?

Addison Co. has one temporary difference at the beginning of 2014 of $500,000. The deferred tax liability established for this amount is $150,000, based on a tax rate of 30%. The temporary difference will provide the following taxable amounts: $100,000 in 2015, $200,000 in 2016, and $200,000 in 2017. If a new tax rate for 2017 of 20% is enacted into law at the end of 2014, what is the journal entry necessary in 2014 (if any) to adjust deferred taxes?

At the end of the year, Falabella Co. has pretax financial income of $550,000. Included in the $550,000 is $70,000 interest income on municipal bonds, $25,000 fine for dumping hazardous waste, and depreciation of $60,000. Depreciation for tax purposes is $45,000. Compute income taxes payable, assuming the tax rate is 30% for all periods.

How is it determined whether deferred tax amounts are considered to be “related” to specific asset or liability amounts?

Describe the procedures involved in segregating various deferred tax amounts into current and noncurrent categories.

How are deferred tax assets and deferred tax liabilities reported on the balance sheet?

Pretax financial income for Lake Inc. is $300,000, and its taxable income is $100,000 for 2015. Its only temporary difference at the end of the period relates to a $70,000 difference due to excess depreciation for tax purposes. If the tax rate is 40% for all periods, compute the amount of income tax expense to report in 2015. No deferred income taxes existed at the beginning of the year.

What is the difference between a future taxable amount and a future deductible amount? When is it appropriate to record a valuation account for a deferred tax asset?

Roth Inc. has a deferred tax liability of $68,000 at the beginning of 2015. At the end of 2015, it reports accounts receivable on the books at $90,000 and the tax basis at zero (its only temporary difference). If the enacted tax rate is 34% for all periods, and income taxes payable for theperiod is $230,000, determine the amount of total income tax expense to report for 2015.

The book basis of depreciable assets for Erwin Co. is $900,000, and the tax basis is $700,000 at the end of 2015. The enacted tax rate is 34% for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2015.

Differentiate between an originating temporary difference and a reversing difference.

Explain the meaning of a temporary difference as it relates to deferred tax computations, and give three examples.

Interest on municipal bonds is referred to as a permanent difference when determining the proper amount to report for deferred taxes. Explain the meaning of permanent differences, and give two other examples.

What are the two objectives of accounting for income taxes?

Explain the difference between pretax financial income and taxable income.