Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 17, Problem 17.9E
Change in Tax Rates, Permanent Difference, Reconciliation of Statutory Tax Rate to Effective Tax Rate. Using the same information provided in E17-8, assume that Meyer-Swift invested in tax-free municipal bonds. The bonds pay interest of $1,000 each year In addition, a new tax law enacted at the beginning of Year 2 reduced the corporate tax rate to 30%.
Required
- a. Prepare the journal entries required to record the tax provision for all 3 years, as well as the
journal entry needed to record the effect of the tax rate change on anydeferred tax accounts - b. Determine the net income reported on the income statement for all 3 years
- c. Prepare the footnote in dollars and percentages required to reconcile the company’s federal statutory income tax rate with its effective tax rate
E17-8 Temporary Differences.
| Year 1 | Year 2 | Year 3 | ||||
| Account | GAAP | Tax | GAAP | Tax | GAAP | Tax |
| Sales | $5,000 | $5,000 | $6,200 | $6,200 | $7800 | $7800 |
| Gross profit on installment sates | 3,200 | 0 | 0 | 0 | 0 | 0 |
| Taxable portion of cash collected on installment sates | 700 | 1,500 | 1,000 | |||
| Operating expenses | (500) | (500) | (620) | (620) | (780) | (780) |
| Income before tax | $7,700 | $5,580 | $7020 | |||
| Taxable income | $5,200 | $7,080 | $8,020 | |||
| Tax rate | ×35% | × 35% | × 35% | |||
| Tax payable | $1,820 | $2,478 | $2,807 | |||
Required
- a. Prepare the journal entries required to record the tax expense for all 3 years.
- b. Determine the net income reported on the income statement for the 3 years.
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Transactions Affecting E&P. For each of the following transactions, indicate whether a special
adjustment must be made in computing R Corporation's current E&P. Answer assuming that E&P
has already been adjusted for current taxable income.
a. During the year, the corporation paid estimated Federal income taxes of $25,000 and
estimated state income taxes of $10,000.
b. The corporation received $5,000 of interest income from its investment in tax-exempt bonds.
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e. The corporation reported a § 1245 gain of $20,000.
f. The corporation had a capital loss carryover of $7,000 from the previous year. This year the
corporation had capital gains before consideration of the loss of $10,000.
For each of the following transactions, indicate wheth-er a special adjustment must be made in computing R Corporation’s current E&P. Answer assuming that E&P has already been adjusted for current taxable income.
During the year, the corporation paid estimated Federal income taxes of $25,000 and estimated state income taxes of $10,000.
The corporation received $5,000 of interest income from its investment in tax-exempt bonds.
The corporation received a $10,000 dividend from General Motors Corporation.
The corporation purchased machinery for $9,000 and expensed the entire amount in accordance with Code § 179.
The corporation reported a § 1245 gain of $20,000. f. The corporation had a capital loss carryover of $7,000 from the previous year. This year the corporation had capital gains before consideration of the loss of $10,000.
Harper Company began operations at the beginning of 2021. The following information pertains to this company. 1. Pretax financial income:2021 $ 850,0002022 1,250,0002023 2,875,0002. The tax rate enacted for 2021 is 20%.3. Differences between the 2021 income statement and tax return are listed below: (a) Interest revenue earned on an investment in tax-exempt municipal bonds amounts to $3,000 in 2021, $1,500 in 2022, and $2,000 in 2023.(b) Revenue in 2023 on a construction contract is $800,000 for tax purposes. For financial statement purposes, revenue will amount to $100,000 in 2021, $300,000 in 2022, and the remainder in 2023. This is Harper’s only construction contract during 2021-2023.(c) Depreciation of equipment for financial reporting purposes is calculated using the straight-line method. Harper purchased equipment on January 1, 2022 at a cost of $50,000. The equipment has a life of 5 years and a $5,000 salvage value. Depreciation of the equipment for the tax return will be based…
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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