AC 302 WEEK 3 Willy Exercises Questions
Exercise 19 Question 1
South Carolina Corporation has one temporary difference at the end of 2014 that will reverse and cause taxable amounts of $57,090 in 2015, $61,950 in 2016, and $67,324 in 2017. South Carolina- pretax financial income for 2014 is $349,800, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2014.
Your answer is correct.
(a) Compute taxable income and income taxes payable for 2014.
Taxable income $
Income taxes payable $
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation Debit Credit
Exercise 19-6
Your answer is correct.
Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes.
For each item below, indicate whether it involves:
(1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset.
(2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability.
(3) A permanent difference.
Use the appropriate number to indicate your answer for each.
(a)
The MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets.
(b)
A landlord collects some rents in advance. Rents received are taxable in the period when they are received.
(c)
Expenses are incurred in obtaining tax-exempt income.
(d)
Costs of guarantees and warranties are estimated and accrued for financial reporting purposes.
(e)
Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes.
(f)
For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes but the assets’ lives are shorter for tax purposes.
(g)
Interest is received on an investment in tax-exempt municipal obligations.
(h)
Proceeds are received from a life insurance company because of the death of a key officer. (The company carries a policy on key officers.)
(i)
The tax return reports a deduction for 80% of the dividends received from U.S. corporations. The cost method is used in accounting for the related investments for financial reporting purposes.
(j)
Estimated losses on pending lawsuits and claims are accrued for books. These losses are taxdeductible in the period(s) when the related liabilities are settled.
(k)
Expenses on stock options are accrued for financial reporting purposes.
Exercise 19-9
The pretax financial income (or loss) figures for Jenny Spangler Company are as follows.
2009 $161,700
2010 254,300
2011 85,800
2012 (161,700 )
2013 (381,200 )
2014 123,100
2015 109,000
Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 45% tax rate for 2009 and 2010 and a 40% tax rate for the remaining years.
Prepare the journal entries for the years 2011 to 2015 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Jenny Spangler 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
2011
(To record income tax expense.)
2012
2013
(To record carryback.)
(To record carryforward.)
2014
2015
Exercise 19-25
Meyer reported the following pretax financial income (loss) for the years 2012-2016.
2012 $248,200
2013 351,000
2014 130,000
2015 (578,000 )
2016 182,300
Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 37% for 2012 and 2013, and 43% for 2014-2016. Assume the carryback provision is used first for net operating losses.
USA 
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