Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Chapter 17, Problem 17.13P
Permanent Differences, Temporary Tax Differences, Change in Tax Rates, Reconciliation of Statutory Tax Rate to Effective Tax Rate, Classification of
- In 2018, Simply Syrup purchased equipment costing $440,000 (with a useful life of 4 years and no salvage value) that it will
depreciate on a straight-line basis for financial reporting purposes. Simply Syrup will use an accelerated method for tax purposes and depreciate $200,000 in the first year and $80,000 in the following 3 years (i.e. 2019 through 2021). - On December 31, 2018, Simply Syrup collected $70,000 for future delivery of 3,500 cases of its Maple Light Syrup It is scheduled to deliver 2,100 cases in 2019 and the remainder in 2020.
- Simply Syrup invests in U S government securities to earn tax-free interest. In 2018, the company reported $8,000 of interest income from this investment on its income statement.
- Simply Syrup makes a promise to its customers: “We will give you a full refund if you are hospitalized after eating our syrup on your pancakes. Based on past experience, the company estimates that this warranty will cost 10% of sales. Sales of syrup in 2018 amounted to $100,000, and the firm recorded an accrued warranty expense of $10,000 The warranties expire in 1 year.
- In 2018. Simply Syrup insured the life of its president, Hill L. Minimon. The premiums paid amounted to $5,000. The company is the beneficiary.
Simply Syrup has a 40% tax rate and reported income before tax of $500,000 under GAAP for 2018.
Required
- a. Compute income tax payable in 2018.
- b. Determine the deferred tax asset and liability at the end of 2018.
- c. Determine income tax expense for 2018 and prepare the
journal entry or entries necessary to record the tax provision for the year. Recorddeferred tax assets anddeferred tax liabilities separately. - d. Compute the 2018 effective tax rate and reconcile it to the statutory federal rate of 40% in both percentages and dollars.
- e. Prepare the entry necessary in 2018 based on having obtained information that Simply Syrup will not realize one-half of the deferred tax asset over the reversal period.
- f. Assume that the 2020 Congress enacts a new law on January 1, 2020, reducing the tax rate to 36% effective January 1, 2020. Assume also that Simply Syrup has no further warranty accruals and no warranty claims in 2019. Prepare the journal entry necessary on January 1, 2020, to reflect this tax rate change Record any deferred tax assets and deferred tax liabilities separately and ignore any allowance account for a deferred tax asset. Assume that planned reversals of deferred accounts were recorded in 2019.
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Note: If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.
Required:
Prepare the journal entry to record the deferred tax consequences for recognition of the current year NOL before considering the valuation allowance.
Prepare the journal entry to record the deferred tax consequences of the depreciation book-tax difference.
Prepare the journal entry to record the deferred tax consequences of the valuation allowance.
Saginaw Incorporated completed its first year of operations with a pretax loss of $627,500. The tax return showed a net
operating loss of $756,500, which the company will carry forward. The $129,000 book-tax difference results from excess tax
depreciation over book depreciation. Management has determined that it should record a valuation allowance equal to the
net deferred tax asset. Assuming the current tax expense is zero, prepare the journal entries to record the deferred tax
provision and the valuation allowance. (If no entry is required for a transaction/event, select "No Journal Entry Required"
in the first account field.)
Required:
a. Prepare the journal entry to record the deferred tax consequences for recognition of the current year NOL before
considering the valuation allowance.
b. Prepare the journal entry to record the deferred tax consequences of the depreciation book-tax difference.
c. Prepare the journal entry to record the deferred tax consequences of the valuation…
Chapter 17 Solutions
Intermediate Accounting
Ch. 17 - Prob. 17.1QCh. 17 - When will income tax expense and income taxes...Ch. 17 - Will permanent differences cause the effective tax...Ch. 17 - When do permanent differences arise?Ch. 17 - How are deferred tax assets and deferred tax...Ch. 17 - Prob. 17.6QCh. 17 - Prob. 17.7QCh. 17 - Prob. 17.8QCh. 17 - Prob. 17.9QCh. 17 - How does a firm determine the need for a valuation...
Ch. 17 - Prob. 17.11QCh. 17 - Prob. 17.12QCh. 17 - Prob. 17.13QCh. 17 - How does an entity account for uncertain tax...Ch. 17 - Prob. 17.15QCh. 17 - Prob. 17.16QCh. 17 - Do U.S. GAAP and IFRS classify deferred tax...Ch. 17 - Prob. 17.18QCh. 17 - Cavan Company prepared the following...Ch. 17 - Prob. 17.2MCCh. 17 - Prob. 17.3MCCh. 17 - Prob. 17.4MCCh. 17 - Prob. 17.5MCCh. 17 - Prob. 17.6MCCh. 17 - Prob. 17.7MCCh. 17 - Prob. 17.1BECh. 17 - Income Taxes Payable. Limmox Company has...Ch. 17 - Permanent Differences. Simmox Company's income...Ch. 17 - Permanent Differences. Plimmox Company's income...Ch. 17 - Permanent Differences, Reconciliation of Statutory...Ch. 17 - Prob. 17.6BECh. 17 - Prob. 17.7BECh. 17 - Prob. 17.8BECh. 17 - Prob. 17.9BECh. 17 - Prob. 17.10BECh. 17 - Temporary Differences, Deferred Tax Liability....Ch. 17 - Temporary Differences. Deferred Tax Asset....Ch. 17 - Temporary Differences, Deferred Tax Asset. Using...Ch. 17 - Prob. 17.14BECh. 17 - Realizability of Deferred Assets. Maves, Inc....Ch. 17 - Prob. 17.16BECh. 17 - Prob. 17.17BECh. 17 - Prob. 17.18BECh. 17 - Prob. 17.19BECh. 17 - Prob. 17.20BECh. 17 - Prob. 17.21BECh. 17 - Prob. 17.22BECh. 17 - Prob. 17.23BECh. 17 - Prob. 17.24BECh. 17 - Prob. 17.25BECh. 17 - Prob. 17.26BECh. 17 - Prob. 17.27BECh. 17 - Prob. 17.1ECh. 17 - Prob. 17.2ECh. 17 - Prob. 17.3ECh. 17 - Prob. 17.4ECh. 17 - Temporary Differences, Deferred Tax Assets and...Ch. 17 - Temporary Differences, Deferred Tax Assets and...Ch. 17 - Prob. 17.7ECh. 17 - Prob. 17.8ECh. 17 - Change in Tax Rates, Permanent Difference,...Ch. 17 - Prob. 17.10ECh. 17 - Prob. 17.11ECh. 17 - Net Operating Loss, Carryback. Phlash Photo Labs,...Ch. 17 - Net Operating Loss, Carryforward. Loggins Lumber...Ch. 17 - Prob. 17.14ECh. 17 - Prob. 17.15ECh. 17 - Net Operating Loss, Carryforward, Tax Rate Change....Ch. 17 - Prob. 17.17ECh. 17 - Prob. 17.18ECh. 17 - Uncertain Tax Positions. Lewis Eagle Corporation...Ch. 17 - Uncertain Tax Positions. Based on the information...Ch. 17 - Prob. 17.21ECh. 17 - Prob. 17.1PCh. 17 - Temporary Differences, Deferred Tax Liabilities,...Ch. 17 - Prob. 17.3PCh. 17 - Prob. 17.4PCh. 17 - Temporary Differences, Deferred Tax Liabilities,...Ch. 17 - Prob. 17.6PCh. 17 - Prob. 17.7PCh. 17 - Prob. 17.8PCh. 17 - Prob. 17.9PCh. 17 - Prob. 17.10PCh. 17 - Prob. 17.11PCh. 17 - Prob. 17.12PCh. 17 - Permanent Differences, Temporary Tax Differences,...Ch. 17 - Prob. 1JCCh. 17 - Prob. 2JCCh. 17 - Prob. 1FSACCh. 17 - Prob. 1SSCCh. 17 - Prob. 2SSCCh. 17 - Prob. 3SSCCh. 17 - Scene 1: The concept of the deferred tax liability...Ch. 17 - Basis for Conclusions Case 2: Uncertain Tax...
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