Information for Entity A for the year ended December 31, 2018 ($ in millions):
Income from continuing operations before tax
$160
Temporary differences (all related to operating income):
Accrued warranty expense in excess of expense included in operating income
12
Depreciation deducted on tax return in excess of depreciation expense
32
Permanent differences (all related to operating income):
Nondeductible portion of entertainment expense
8
Interest received on municipal bonds
3
Balance in deferred tax asset account, January 1, 2018
1
Balance in deferred tax liability account, January 1, 2018
2
The applicable enacted tax rate for all periods is 40%.
Show work.
A. Prepare the appropriate journal entry to record income taxes.
B. What is Entity A's net income?
C. Sometimes a temporary difference will produce future deductible amounts. Explain what is meant by future deductible amounts. Describe at least one situation that has this effect, for example, one example is when rent revenue is collected in advance from tenants (deferred rent revenue for financial accounting purposes) but will be recognized as the tenants occupy the property. You can think of others. How are future deductible amounts recognized in the financial statements? As between deferred tax assets and deferred tax liabilities, which would management prefer and why?
Information for Entity A for the year ended December 31, 2018 ($ 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 |
|
| Depreciation deducted on tax return in excess of depreciation expense |
|
| 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?
Related questions
I have a question. I got right Deferred Tax Asset and $12,350Income Tax Payable $173,740 but I got wrong Income Tax Expense andDeferred tax liability.
Bridgeport Inc. has two temporary differences at the end of 2016.The first difference stems from installment sales, and the secondone results from the accrual of a loss contingency. Bridgeportâsaccounting department has developed a schedule of future taxableand deductible amounts related to these temporary differences asfollows.
| 2017 | 2018 | 2019 | 2020 | |
| Taxable Amounts | 42,700 | 45,900 | 64,300 | 81,400 |
| Deductible Amounts | (13,600) | (18,900) | ||
| TOTALS | 42,700 | 32,300 | 45,400 | 81,400 |
As of the beginning of 2016, the enacted tax rate is 34% for2016 and 2017, and 38% for 2018â2021. At the beginning of 2016, thecompany had no deferred income taxes on its balance sheet. Taxableincome for 2016 is $511,000. Taxable income is expected in allfuture years.
Prepare the journal entry to record income tax expense, deferredincome taxes, and income taxes payable for 2016.
