Resource: Intermediate Accounting
Prepare written responses to the following assignments from the text:
• Ch. 19: Exercises E19-3, E19-6, E19-7, & E19-9
E19-3 (One Temporary Difference, Future Taxable Amounts, One Rate, Beginning Deferred Taxes)
Bandung Corporation began 2007 with a $92,000 balance in the Deferred Tax Liability account. At the end of 2007, the related cumulative temporary difference amounts to $350,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2007 is $525,000, the tax rate for all years is 40%, and taxable
income for 2007 is $405,000.
Instructions
(a) Compute income taxes payable for 2007.
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2007.
(c) Prepare the income tax expense section of the income statement for 2007 beginning with the line
“Income before income taxes.”
E19-6 (Identify Temporary or Permanent Differences) Listed below are items that are commonly
accounted for differently for financial reporting purposes than they are for tax purposes.
Instructions
For each item below, indicate whether it involves:
E19-7 (Terminology, Relationships, Computations, Entries)
Instructions
Complete the following statements by filling in the blanks.
(a) In a period in which a taxable temporary difference reverses, the reversal will cause taxable income
to be _______ (less than, greater than) pretax financial income.
(b) If a $76,000 balance in Deferred Tax Asset was computed by use of a 40% rate, the underlying
cumulative temporary difference amounts to $_______.
(c) Deferred taxes ________ (are, are not) recorded to account for permanent differences.
(d) If a taxable temporary difference originates in 2007, it will cause taxable income for 2007 to be
________ (less than, greater than) pretax financial income for 2007.
(e) If total tax expense is $50,000 and deferred tax expense is $65,000, then the current portion of the
expense computation is referred to as current tax _______ (expense, benefit) of $_______.
(f) If a corporation’s tax return shows taxable income of $100,000 for Year 2 and a tax rate of 40%,
how much will appear on the December 31, Year 2, balance sheet for “Income tax payable” if the
company has made estimated tax payments of $36,500 for Year 2? $________.
(g) An increase in the Deferred Tax Liability account on the balance sheet is recorded by a _______
(debit, credit) to the Income Tax Expense account.
(h) An income statement that reports current tax expense of $82,000 and deferred tax benefit of $23,000
will report total income tax expense of $________.
(i) A valuation account is needed whenever it is judged to be _______ that a portion of a deferred
tax asset _______ (will be, will not be) realized.
(j) If the tax return shows total taxes due for the period of $75,000 but the income statement shows
total income tax expense of $55,000, the difference of $20,000 is referred to as deferred tax _______
(expense, benefit).
E19-9 (Carryback and Carryforward of NOL, No Valuation Account, No Temporary Differences) The pretax financial income (or loss) figures for Jenny Spangler Company are as follows.
2002 $160,000
2003 250,000
2004 80,000
2005 (160,000)
2006 (380,000)
2007 120,000
2008 100,000
Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 45% tax rate for 2002 and 2003 and a 40% tax rate for the remaining years.
Instructions
Prepare the journal entries for the years 2004 to 2008 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Jenny Spangler Company uses the carry back provision. All income and losses relate to normal operations. (In recording the benefits of a loss carry forward, assume that no valuation account is deemed necessary.)
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