Exercise 16-4
Requirement 1
($ in millions)
CurrentFuture
YearDeductible
2003Amounts
Temporary difference: (70)
Taxable income 180
Enacted tax rate 40% 40%
Tax payable currently 72
Deferred tax asset (28)
Deferred tax asset:
Ending balance $ 28
Less: beginning balance($75 x 40%) (30)
Change in balance $( 2)
Journal entry at the end of 2003
Income tax expense (to balance)74
Deferred tax asset (determined above)2
Income tax payable (determined above) 72
Requirement 2
($ in millions)
Income tax expense (to balance)74
Deferred tax asset (determined above)2
Income tax payable (determined above) 72
Income tax expense14
Valuation allowance – deferred tax asset (1/2 x $28)14
Of course, these two entries can be combined.
Exercise 16-6
Requirement 1
($ in millions)
CurrentFuture
YearTaxable
2003Amount
[total]
Accounting income 20
Temporary difference:
Depreciation ($30 - 20) - ($28 - 13) = (5) 15 ($28 - 13)
Taxable income 15
Enacted tax rate 40% 40%
Tax payable currently 6
Deferred tax liability 6
Deferred tax liability:
Ending balance $ 6
Less: beginning balance($30 - 20) x 40% (4)
Change in balance $ 2
Journal entry at the end of 2003
Income tax expense (to balance)8
Deferred tax liability (determined above)2
Income tax payable (determined above) 6
Requirement 2
($ in millions)
Pretax accounting income $20
Income tax expense (8)
Net income $12
Exercise 16-9
D 1. Accrual of loss contingency, tax-deductible when paid.
D 2. Newspaper subscriptions; taxable when received, recognized for financial reporting when earned.
T 3. Prepaid rent, tax-deductible when paid.
D 4. Accrued bond interest expense; tax-deductible when paid.
T 5. Prepaid insurance, tax-deductible when paid.
D 6. Unrealized loss from recording investments available for sale at fair market (tax-deductible when investments are sold).
D 7. Bad debt expense; allowance method for financial reporting; direct write-off for tax purposes.
D 8. Advance rent receipts on an operating lease (as the lessor), taxable when received.
T 9. Straight-line depreciation for financial reporting; accelerated depreciation for tax purposes.
D 10. Accrued expense for employee postretirement benefits; tax-deductible when subsequent payments are made.
Exercise 16-11
Requirement 1
($ in thousands)
CurrentFutureFuture
YearTaxableTaxable
2003AmountsAmounts
2004 2005 2006
Accounting income 300
Non-temporary difference:
Municipal bond interest (40)
Temporary difference:
Depreciation (10) (2) 2 10 10
Taxable income 250
Enacted tax rate 40% 40%
Tax payable currently 100
Deferred tax liability 4
Deferred tax liability:
Ending balance $ 4
Less: beginning balance 0
Change in balance $ 4
Journal entry at the end of 2003
Income tax expense (to balance)104
Deferred tax liability (determined above)4
Income tax payable (determined above) 100
Requirement 2
($ in thousands)
Pretax accounting income $300
Income tax expense (104)
Net income $196
Exercise 16-23
Requirement 1
($ in thousands)
CurrentFuture
Prior YearsYearDeductible
2001 20022003Amounts
[total]
Operating loss (160)
Loss carryback (80) (60) 140
Loss carryforward 20 (20)
0
Enacted tax rate 40% 45% 40%40%
Tax payable (refundable) (32) (27) 0
Deferred tax asset (8)
Deferred tax asset:
Ending balance $ 8
Less: beginning balance (0)
Change in balance $8
Journal entry at the end of 2003
Receivable – income tax refund ($32 + 27) 59
Deferred tax asset (determined above) 8
Income tax benefit – operating loss (to balance) 67
Requirement 2
($ in thousands)
Operating loss before income taxes $160
Less: Income tax benefit:
Tax refund from loss carryback $59
Future tax savings from loss carryforward 8 (67)
Net operating loss $ 93
Exercise 16-24
($ in millions)
FutureDeferred
ClassificationTaxableTax (Asset)
Related Balance current-C (Deductible)TaxLiability
Sheet Accountnoncurrent-NAmountsRateC N
Liability – warranty expenseC (15) x 40% (6)
Depreciable assetsN 120 x 40% 48
Receivable – installment sales C 10 x 40% 4
Receivable – installment sales N 40 x 40% 16
Allowance – uncollectible accountsC (25) x 40% (10)
Net current liability (asset) (12)
Net noncurrent liability (asset) 64
Current Assets:
Deferred tax asset $12
Long-Term Liabilities:
Deferred tax liability $64
Note: Before offsetting assets and liabilities within the current and noncurrent categories, the total deferred tax assets is $16 ($6+10) and the total deferred tax liabilities is $68 ($4+48+16).
Exercise 16-26
Requirement 1
($ in thousands)
CurrentFuture TaxableDeferred
Year(Deductible)Tax
2003AmountsLiab. Asset
2004 2005 2006
Accounting income 810
Non-temporary difference (10)
Temporary differences:
Installment sales (600) 150 250 200
30% 40% 40%
Deferred tax liability 45 100 80 225
Warranty expense 60 (20) (25) (15)
30% 40% 40%
Deferred tax asset (6) (10) (6) (22)
Taxable income 260
Enacted tax rate 30%
Tax payable currently 78
Deferred
Tax
Liab. Asset
Ending balances: $225 $22
Less: beginning balances: 0 0
Change in balances $225 $22
Journal entry at the end of 2003
Income tax expense (to balance)281
Deferred tax asset (determined above)22
Deferred tax liability (determined above)225
Income tax payable (determined above) 78
Exercise 16-26 (concluded)
Requirement 2
($ in thousands)
Pretax accounting income $810
Income tax expense (281)
Net income $529
Requirement 3
In a classified balance sheet, deferred tax assets and deferred tax liabilities are classified as either current or noncurrent according to how the related assets or liabilities are classified for financial reporting. Both the deferred tax liability arising from installment sales and deferred tax asset arising from warranties would be classified as part current and part noncurrent because the related installment receivable and estimated warranty liability would properly be classified as part current and part noncurrent. The deferred tax liabilities and deferred tax assets are offset to get the net current and the net noncurrent amounts:
Current Liabilities:
Deferred tax liability $39,000
($45,000 - 6,000)
Long-Term Liabilities:
Deferred tax liability $164,000
([$100,000 + 80,000] – [10,000 + 6,000])
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