ACCT301 Chp 19 MC

Parker Corporation prepared the following reconciliation for 2017, its first year of operations: Pretax financial income for 2017$ 2,060,000 Tax exempt interest(350,000) Originating temporary difference(690,000) Taxable income$ 1,020,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 35%. The enacted tax rate for 2017 is 30%. What amount should Grey report in its 2017 income statement as the deferred portion of the provision for income taxes?

$241,500. 690,000 x .35

Mitchell Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2021$1800000Tax exempt interest(150000)Originating temporary difference(350000)Taxable income$1300000 The temporary difference will reverse evenly over the next 2 years at an enacted tax rate of 30%. The enacted tax rate for 2021 is 25%.What amount should be reported in its 2021 income statement as the deferred portion of income tax expense?

$350000 × 0.30 = $105000 debit.

Larsen Corporation reported $200000 in revenues in its 2021 financial statements, of which $66000 will not be included in the tax return until 2022. The enacted tax rate is 30% for 2021 and 25% for 2022. What amount should Larsen report for deferred income tax liability in its balance sheet at December 31, 2021?

$66000 × 0.25 = $16500.

Pringle Corporation reported $200,000 in revenues in its 2016 financial statements, of which $88,000 will not be included in the tax return until 2017. The enacted tax rate is 40% for 2016 and 35% for 2017. What amount should Pringle report for deferred income tax liability in its balance sheet at December 31, 2016?

$88,000 .35 = $30,800

Which of the following is a permanent difference?

Interest received on state and municipal obligations.

Which of the following could require interperiod tax allocation?

Unearned service contract revenue.

A temporary difference arises when a revenue item is reported for tax purposes in a period After it is reported in financial income Before it is reported in financial income

Yes, Yes

Taxable income of a corporation differs from pretax financial income because of Permanent Differences Temporary Differences

Yes, Yes

Temporary differences arise when revenues are taxable After they are recognized in financial income Before they are recognized in financial income

Yes, yes

A deferred tax asset represents a

future tax benefit

A deferred tax liability represents the:

increase in taxes payable in future years as a result of taxable temporary differences.

A valuation account is used to:

reduce a deferred tax asset.

Taxable amounts are temporary differences that:

require the recording of a deferred tax liability.

A major distinction between temporary and permanent differences is

temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if

the future tax rates have been enacted into law.

Duncan Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Profits of $1200000 recognized for books in 2020 will be collected in the following years: Collection of Profits2021$2000002022$4000002023$600000 The enacted tax rates are: 30% for 2020, 25% for 2021, and 20% for 2022 and 2023. Taxable income is expected in all future years. What amount should be included in the December 31, 2020, balance sheet for the deferred tax liability related to the above temporary difference?

$250000

Rowen, Inc. had pre-tax accounting income of $2700000 and a tax rate of 20% in 2021, its first year of operations. During 2021 the company had the following transactions: Received rent from Jane, Co. for 2022$96000Municipal bond income$120000Depreciation for tax purposes in excess of book depreciation$60000Installment sales profit to be taxed in 2022$162000 For 2021, what is the amount of income taxes payable for Rowen, Inc?

$2700000 + $96000 - $120000 - $60000 - $162000 = $2454000$2454000 × 0.20 = $490800.

Mitchell Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2021$1800000Tax exempt interest(150000)Originating temporary difference(350000)Taxable income$1300000 The temporary difference will reverse evenly over the next 2 years at an enacted tax rate of 30%. The enacted tax rate for 2021 is 25%.In Mitchell's 2021 income statement, what amount should be reported for total income tax expense?

($1300000 × 0.25) + ($350000 × 0.30) = $430000.

A reconciliation of Gentry Company's pretax accounting income with its taxable income for 2021, its first year of operations, is as follows: Pretax accounting income$4500000Excess tax depreciation(225000)Taxable income$4275000 The excess tax depreciation will result in equal net taxable amounts in each of the next three years. Enacted tax rates are 30% in 2021, 25% in 2022 and 2023, and 20% in 2024. The total deferred tax liability to be reported on Gentry's balance sheet at December 31, 2021, is

225,00/3 = 75,000. ($75000 × 25%) + ($75000 × 25%) + ($75000 × 20%) = $52500.

Hawkins Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 35% in 2017, its first year of operations. During 2017 the company had the following transactions: Received rent from Barrett Co. for 2018$64,000 Municipal bond income$80,000 Depreciation for tax purposes in excess of book depreciation$40,000 Installment sales revenue to be collected in 2018$108,000 For 2017, what is the amount of income taxes payable for Hawkins Inc.?

572,600. Pre-tax accounting income, $1,800,000 + Rent receipt, $64,000 - Bond income, $80,000 - Depreciation adjustment, $40,000 - Installment sales revenue, $108,000 = Taxable Income, $1,636,000; Taxable Income, $1,636,000 Tax rate,.35 = Tax liability/Income Taxes Payable, $572,600.