ADMS 3595 Lecture Notes - Lecture 4: Homestar Runner, Deferred Tax, Deferred Income

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8 Jun 2018

School

York University

Department

Administrative Studies

Course

ADMS 3595

Professor

Yong Troy

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ADMS3595 – Chapter 18

Supplementary Question

Page 1

Question 1:

The following information pertains to Suda Corporation at the end of 20X1:

At the end of 20X1, Suda had a balance in its deferred income tax liability account of $105,000,

pertaining to both the amounts above. That is, there is $35,000 related to equipment and

$70,000 to the capitalized development costs. The enacted income tax rate (combined federal

and provincial) at the end of 20X1 was 35%.

The following information pertains to the next three years:

Required:

For each of 20X2, 20X3 and 20X4, calculate:

1. The income tax expense that would appear on Suda's income statement.

2. The balance of the deferred income tax liability or asset account(s) that would appear on

Suda's statement of financial position.

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Document Summary

The following information pertains to suda corporation at the end of 20x1: At the end of 20x1, suda had a balance in its deferred income tax liability account of ,000, pertaining to both the amounts above. That is, there is ,000 related to equipment and. The enacted income tax rate (combined federal and provincial) at the end of 20x1 was 35%. The following information pertains to the next three years: For each of 20x2, 20x3 and 20x4, calculate: the income tax expense that would appear on suda"s income statement, the balance of the deferred income tax liability or asset account(s) that would appear on. The village company manufactures and sells television sets. The following information is taken from the company"s books: Net book value of depreciable assets at 31 december 20x5 is ,600,000. There is a deferred tax liability of ,000 with respect to this temporary difference. There is no taxable income remaining to absorb loss carrybacks prior to 20x5.

Related Questions

Miller Company has a defined benefit pension plan. The following information is available at year end:

Projected benefit obligation $1,345,000

Accumulated benefit obligation $1,085,000

Vested benefit obligation $ 995,000

Fair value of plan assets $1,030,000

Which of the following would Miller report on its year-end balance sheet?

A long term asset of $35,000

A long term liability of $55,000

A long term liability of $315,000

A long term liability of $1,345,000

Maxie Corp. purchases equipment for $400,000 on 1/1/16. The equipment is expected to have an eight-year life with a residual value of $40,000 for both financial reporting and tax Maxie uses straight line depreciation for financial reporting and double declining balance for tax purposes. Maxie reported Income before depreciation of $500,000 for both 2016 & 2017. For those tax years, Miser reported the following depreciation deductions:

Tax (DDB) Financial (SL)

2016 $100,000 $ 45,000

2017 $ 75,000 $ 45,000

If Maxie Corp has an income tax rate of 40%, which of the following would appear on Maxieâs 12/31/2017 Balance Sheet?

Income Tax Expense $170,000

Deferred Tax Liability $34,000

Deferred Tax Liability $22,000

Deferred Tax Asset $34,000

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Information for Entity A for the year ended December 31, 2018 ($ in millions):

Income from continuing operations before tax	$160
Temporary differences (all related to operating income):
Accrued warranty expense in excess of expense included in operating income	12
Depreciation deducted on tax return in excess of depreciation expense	32
Permanent differences (all related to operating income):
Nondeductible portion of entertainment expense	8
Interest received on municipal bonds	3
Balance in deferred tax asset account, January 1, 2018	1
Balance in deferred tax liability account, January 1, 2018	2
The applicable enacted tax rate for all periods is 40%.

Show work.

A. Prepare the appropriate journal entry to record income taxes.

B. What is Entity A's net income?

C. Sometimes a temporary difference will produce future deductible amounts. Explain what is meant by future deductible amounts. Describe at least one situation that has this effect, for example, one example is when rent revenue is collected in advance from tenants (deferred rent revenue for financial accounting purposes) but will be recognized as the tenants occupy the property. You can think of others. How are future deductible amounts recognized in the financial statements? As between deferred tax assets and deferred tax liabilities, which would management prefer and why?

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Sherrod, Inc., reported pretax accounting income of $68 millionfor 2016. The following information relates to differences betweenpretax accounting income and taxable income:

a.	Income from installment sales of properties included in pretaxaccounting income in 2016 exceeded that reported for tax purposesby $6 million. The installment receivable account at year-end had abalance of $8 million (representing portions of 2015 and 2016installment sales), expected to be collected equally in 2017 and2018.
b.	Sherrod was assessed a penalty of $4 million by theEnvironmental Protection Agency for violation of a federal law in2016. The fine is to be paid in equal amounts in 2016 and 2017.
c.	Sherrod rents its operating facilities but owns one assetacquired in 2015 at a cost of $56 million. Depreciation is reportedby the straight-line method assuming a four-year useful life. Onthe tax return, deductions for depreciation will be more thanstraight-line depreciation the first two years but less thanstraight-line depreciation the next two years ($ in millions):

	Income Statement		Tax Return		Difference
2015	$	14	$	18	$	(4	)
2016		14		22		(8	)
2017		14		8		6
2018		14		8		6

	$	56	$	56	$	0

d.	Warranty expense of $5 million is reported in 2016. For taxpurposes, the expense is deducted when costs are incurred, $4million in 2016. At December 31, 2016, the warranty liability was$4 million (after adjusting entries). The balance was $3 million atthe end of 2015.
e.	In 2016, Sherrod accrued an expense and related liability forestimated paid future absences of $14 million relating to thecompanyâs new paid vacation program. Future compensation will bedeductible on the tax return when actually paid during the next twoyears ($8 million in 2017; $6 million in 2018).
f.	During 2015, accounting income included an estimated loss of $2million from having accrued a loss contingency. The loss is paid in2016 at which time it is tax deductible.

Balances in the deferred tax assetand deferred tax liability accounts at January 1, 2016, were $2.0million and $2.4 million, respectively. The enacted tax rate is 40%each year.

1. Determine the amounts necessary to record income taxes for2016 and prepare the appropriate journal entry.

2. What is the 2016 net income?

3. SHow how any deferred tax amounts should be classified andreported in the 2016 balance sheet.

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ADMS 3595 Lecture Notes - Lecture 4: Homestar Runner, Deferred Tax, Deferred Income

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