Exercise
Exercise 16–1
Requirement 1
Since taxable income is less than pretax accounting income, a future taxable amount will occur when the temporary difference reverses. This means a deferred tax liability should be recorded to reflect the future tax consequences of the temporary difference.
Income tax expense (to balance) 140,000 Deferred tax liability ([$400,000 – 250,000] x 35%) 52,500 Income tax payable ($250,000 x 35%) 87,500
As a result, net income is $260,000:
Pretax accounting income $400,000
Income tax expense 140,000
Net income $260,000
Requirement 2
In its balance sheet, Alvis will report the $52,500 deferred tax liability among either its current or long-term liabilities depending on the cause of the temporary difference and the $87,500 income tax payable as a current liability.
Exercise 16–4
Income tax expense (to balance) 830,000 Deferred tax asset ($300,000 x 40%) 120,000 Income tax payable (given) 950,000
Exercise 16–6 D 1. Accrual of loss contingency; tax-deductible when paid. D 2. Newspaper subscriptions: taxable when received; recognized for financial reporting when earned. T 3. Prepaid rent; tax-deductible when paid. D 4. Accrued bond interest expense; tax-deductible when paid. T 5. Prepaid insurance; tax-deductible when paid. D 6. Unrealized loss from recording investments at fair value (tax-deductible when investments are sold). D 7. Warranty expense; estimated for financial reporting when products are sold; deducted for tax purposes when paid. D 8. Advance rent receipts on an operating lease (as the lessor); taxable when received. T 9. Straight-line depreciation for financial reporting; accelerated depreciation for tax purposes. D 10. Accrued expense for employee postretirement benefits; tax-deductible when subsequent payments are made.
Exercise 16–9 ($ millions) 1 2 3 4 5 6 7 8 Pretax
Requirement 1
Since taxable income is less than pretax accounting income, a future taxable amount will occur when the temporary difference reverses. This means a deferred tax liability should be recorded to reflect the future tax consequences of the temporary difference.
Income tax expense (to balance) 140,000 Deferred tax liability ([$400,000 – 250,000] x 35%) 52,500 Income tax payable ($250,000 x 35%) 87,500
As a result, net income is $260,000:
Pretax accounting income $400,000
Income tax expense 140,000
Net income $260,000
Requirement 2
In its balance sheet, Alvis will report the $52,500 deferred tax liability among either its current or long-term liabilities depending on the cause of the temporary difference and the $87,500 income tax payable as a current liability.
Exercise 16–4
Income tax expense (to balance) 830,000 Deferred tax asset ($300,000 x 40%) 120,000 Income tax payable (given) 950,000
Exercise 16–6 D 1. Accrual of loss contingency; tax-deductible when paid. D 2. Newspaper subscriptions: taxable when received; recognized for financial reporting when earned. T 3. Prepaid rent; tax-deductible when paid. D 4. Accrued bond interest expense; tax-deductible when paid. T 5. Prepaid insurance; tax-deductible when paid. D 6. Unrealized loss from recording investments at fair value (tax-deductible when investments are sold). D 7. Warranty expense; estimated for financial reporting when products are sold; deducted for tax purposes when paid. D 8. Advance rent receipts on an operating lease (as the lessor); taxable when received. T 9. Straight-line depreciation for financial reporting; accelerated depreciation for tax purposes. D 10. Accrued expense for employee postretirement benefits; tax-deductible when subsequent payments are made.
Exercise 16–9 ($ millions) 1 2 3 4 5 6 7 8 Pretax