Brief Exercise 19-1
In 2017, Carla Corporation had pretax financial income of $164,000 and taxable income of
$131,000. The difference is due to the use of different depreciation methods for tax and
accounting purposes. The effective tax rate is 40%.
Compute the amount to be reported as income taxes payable at December 31, 2017.
Income taxes payable at December 31, 2017
$
52,400
2017 taxable income
$131,000
Tax rate
x 40%
12/31/17 income taxes payable $52,400
Brief Exercise 19-2
Marigold Corporation began operations in 2017 and reported pretax financial income of
$246,000 for the year. Marigold’s tax depreciation exceeded its book depreciation by $42,000.
Marigold’s tax rate for 2017 and years thereafter is 30%. In its December 31, 2017, balance sheet,
what amount of deferred tax liability should be reported?
Deferred tax liability to be reported
$
12,600
Excess depreciation on tax return $42,000
Tax rate
x 30%
Deferred tax liability
$12,600
Brief Exercise 19-3
Sage Corporation began operations in 2017 and reported pretax financial income of $230,000 for
the year. Sage’s tax depreciation exceeded its book depreciation by $40,000. Sage’s tax rate for
2017 and years thereafter is 30%. Assume this is the only difference between Sage’s pretax
financial income and taxable income.
Prepare the journal entry to record the income tax expense, deferred income taxes, and income
taxes payable. (Credit account titles are automatically indented when amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the
amounts.)
Account Titles and Explanation
Income Tax Ex
Debit
Credit
69,000
Deferred Tax
12,000
Income Tax Pa
57,000
Show how the deferred tax liability will be classified on the December 31, 2017, balance sheet.
Deferred tax liability should be classified as a
non-current liability
on the December 31, 2017, balance sheet.
Income Taxes Payable= $190,000 x 30% = $57,000
Deferred Tax Liability = $40,000 x 30%
= $12,000
Income Tax Expense = $57,000 + $12,000= $69,000
The $12,000 deferred tax liability should be classified as a non-current liability.
Brief Exercise 19-4
At December 31, 2017, Sandhill Corporation had a deferred tax liability of $25,600. At December
31, 2018, the deferred tax liability is $43,200. The corporation’s 2018 current tax expense is
$49,000. What amount should Sandhill report as total 2018 income tax expense?
Total income tax expense for 2018
$
66,600
Deferred tax liability, 12/31/18
$43,200
Deferred tax liability, 12/31/17
25,600
Deferred tax expense for 2018
17,600
Current tax expense for 2018
49,000
Total income tax expense for 2018 $66,600
Brief Exercise 19-5
At December 31, 2017, Monty Corporation had an estimated warranty liability of $110,000 for
accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.)
The effective tax rate is 40%.
Compute the amount Monty should report as a deferred tax asset at December 31, 2017.
Deferred tax asset at December 31, 2017
$
44,000
Book value of warranty liability
$110,000
Tax basis of warranty liability
0
Cumulative temporary difference at 12/31/17 110,000
Tax rate
x 40%
12/31/17 deferred tax asset
$44,000
Brief Exercise 19-6
At December 31, 2017, Stellar Inc. had a deferred tax asset of $31,100. At December 31, 2018,
the deferred tax asset is $58,100. The corporation’s 2018 current tax expense is $65,400.
What amount should Stellar report as total 2018 income tax expense?
Total income tax expense for 2018
$
38,400
Deferred tax asset, 12/31/18
$58,100
Deferred tax asset, 12/31/17
31,100
Deferred tax benefit for 2018
(27,000)
Current tax expense for 2018
65,400
Total income tax expense for 2018 $38,400
Brief Exercise 19-7
At December 31, 2017, Windsor Corporation has a deferred tax asset of $208,000. After a careful
review of all available evidence, it is determined that it is more likely than not that $62,400 of this
deferred tax asset will not be realized.
Prepare the necessary journal entry. (Credit account titles are automatically indented when amount
is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles
and enter 0 for the amounts.)
Account Titles and Explanation
Income Tax Ex
Debit
Credit
62,400
Allow ance to
62,400
Brief Exercise 19-8
Indigo Corporation had income before income taxes of $211,700 in 2017. Indigo’s current income
tax expense is $43,500, and deferred income tax expense is $32,800.
Prepare Indigo’s 2017 income statement, beginning with Income before income taxes. (Enter loss
using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Indigo Corporation
Income Statement (Partial)
For the Year Ended December 31, 2017
$
Income before Income Taxes
211,700
Income Tax Expense
$
Current
43,500
Deferred
32,800
76,300
$
Net Income / (Loss)
135,400
Brief Exercise 19-9
Vaughn Inc. had pretax financial income of $165,200 in 2017. Included in the computation of that
amount is insurance expense of $3,700 which is not deductible for tax purposes. In addition,
depreciation for tax purposes exceeds accounting depreciation by $9,500.
Prepare Vaughn’s journal entry to record 2017 taxes, assuming a tax rate of 30%. (Credit account
titles are automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
Income Tax Ex
50,670
Income Tax Pa
47,820
Deferred Tax
2,850
Income Taxes Payable = ($159,400* x 30%) = $47,820
Deferred Tax Liability = ($9,500 x 30%)
= $2,850
*$165,200 + $3,700 – $9,500
Exercise 19-2
The following information is available for Indigo Corporation for 2016 (its first year of operations).
1. Excess of tax depreciation over book depreciation, $41,200. This $41,200 difference will
reverse equally over the years 2017–2020.
2. Deferral, for book purposes, of $19,800 of rent received in advance. The rent will be
recognized in 2017.
3. Pretax financial income, $273,100.
4. Tax rate for all years, 30%.
Compute taxable income for 2016.
Taxable income
$
251,700
Pretax financial income for 2016
$273,100
Excess of tax depreciation over book depreciation (41,200)
Rent received in advance
19,800
Taxable income
$251,700
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2016. (Credit account titles are automatically indented when amount is entered. Do
not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for
the amounts.)
Account Titles and Explanation
Income Tax Ex
Debit
81,930
Credit
Deferred Tax
5,940
Income Tax Pa
75,510
Deferred Tax
12,360
Income Taxes Payable = ($251,700 x 0.30) = $75,510
Deferred Tax
Future Taxable
Temporary Difference (Deductible) Amounts Tax Rate (Asset) Liability
Depreciation
Unearned rent
$41,200
(19,800)
30%
30%
$12,360
$(5,940)
$(5,940) $12,360
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2017, assuming taxable income of $303,700. (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Income Tax Ex
93,960
Deferred Tax
3,090
Credit
Income Tax Pa
91,110
Deferred Tax
5,940
Deferred Tax Asset = ($19,800 x 0.30)
= $5,940
Deferred Tax Liability = ($10,300 x 0.30)
= $3,090
Income Taxes Payable = ($303,700 x 0.30)
= $91,110
Income Tax Expense = ($91,110 – $3,090 + $5,940) = $93,960
Deferred Tax
Future Taxable
Temporary Difference (Deductible) Amounts Tax Rate (Asset) Liability
Depreciation
Unearned rent
$30,900
30%
30%
$9,270
$0
$0
$9,270
Deferred tax liability at the beginning of 2017 $12,360
Deferred tax liability at the end of 2017
9,270
Deferred tax benefit for 2017 (decrease
required in deferred tax liability)
$(3,090 )
Deferred tax asset at the end of 2017
Deferred tax asset at the beginning of 2017
0
5,940
Deferred tax expense for 2017 (decrease
required in deferred tax asset)
5,940
Current tax expense for 2017
91,110
Income tax expense for 2017
$93,960
Exercise 19-3
Headland Corporation began 2017 with a $92,200 balance in the Deferred Tax Liability account.
At the end of 2017, the related cumulative temporary difference amounts to $334,800, and it will
reverse evenly over the next 2 years. Pretax accounting income for 2017 is $497,000, the tax rate
for all years is 40%, and taxable income for 2017 is $392,700.
Compute income taxes payable for 2017.
Income taxes payable
$
157,080
Taxable income for 2017
$392,700
Enacted tax rate
40%
Income taxes payable for 2017 $157,080
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2017. (Credit account titles are automatically indented when amount is entered. Do
not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for
the amounts.)
Account Titles and Explanation
Income Tax Ex
Debit
Credit
198,800
Income Tax Pa
157,080
Deferred Tax
41,720
Future Years
2018
2019
Total
Future taxable (deductible) amounts $167,400 $167,400 $334,800
Tax Rate
40%
40%
Deferred tax liability (asset)
$66,960
$66,960 $133,920
Deferred tax liability at the end of 2017
$133,920
Deferred tax liability at the beginning of 2017
92,200
Deferred tax expense for 2017 (increase required in deferred tax liability)
41,720
Current tax expense for 2017
157,080
Income tax expense for 2017
$198,800
Prepare the income tax expense section of the income statement for 2017 beginning with the line
“Income before income taxes.”. (Enter loss using either a negative sign preceding the number e.g. -
45 or parentheses e.g. (45).)
Headland Corporation
Income Statement (Partial)
For the Year Ended December 31, 2017
$
Income before Income Taxes
497,000
Income Tax Expense
Current
Deferred
$
157,080
41,720
198,800
Net Income / (Loss)
$
298,200
Note: Because of the flat tax rate for all years, the amount of cumulative temporary difference
existing at the beginning of the year can be calculated by dividing $92,200 by 40%, which equals
$230,500. The difference between the $230,500 cumulative temporary difference at the beginning
of 2017 and the $334,800 cumulative temporary difference at the end of 2017 represents the net
amount of temporary difference originating during 2017 (which is $104,300). With this
information, we can reconcile pretax financial income with taxable income as follows:
Pretax financial income
$497,000
Temporary difference originating giving rise
to net future taxable amounts
(104,300 )
Taxable income
$392,700
Exercise 19-4
Waterway Company reports pretax financial income of $68,200 for 2017. The following items
cause taxable income to be different than pretax financial income.
Depreciation on the tax return is greater than depreciation on the income statement by
1. $16,900.
2. Rent collected on the tax return is greater than rent recognized on the income statement by
$23,600.
3. Fines for pollution appear as an expense of $11,800 on the income statement.
Waterway’s tax rate is 30% for all years, and the company expects to report taxable income in all
future years. There are no deferred taxes at the beginning of 2017.
Compute taxable income and income taxes payable for 2017.
Taxable income
Income taxes payable
$
86,700
$
26,010
Pretax financial income for 2017
$68,200
Excess depreciation per tax return
(16,900)
Excess rent collected over rent earned 23,600
Nondeductible fines
11,800
Taxable income
$86,700
Taxable income
Enacted tax rate
Income taxes payable
$86,700
30%
$26,010
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2017. (Credit account titles are automatically indented when amount is entered. Do
not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for
the amounts.)
Account Titles and Explanation
Debit
Income Tax Ex
24,000
Deferred Tax
7,080
Credit
Income Tax Pa
26,010
Deferred Tax
5,070
Deferred Tax
Temporary Difference
Future Taxable
Tax Rate (Asset) Liability
(Deductible) Amounts
Depreciation
Unearned rent
$16,900
(23,600)
Totals
30%
30%
$(6,700)
$5,070
$(7,080)
$(7,080)
$5,070*
*Because of a flat tax rate, these totals can be reconciled: $(6,700) x 30% = $(7,080) + $5,070.
Deferred tax liability at the end of 2017
Deferred tax liability at the beginning of 2017
Deferred tax expense for 2017 (increase required in deferred tax liability)
$5,070
0
$5,070
Deferred tax asset at the end of 2017
Deferred tax asset at the beginning of 2017
Deferred tax benefit for 2017 (increase required in deferred tax asset)
$7,080
0
$ (7,080)
Deferred tax expense for 2017
Deferred tax benefit for 2017
Net deferred tax benefit for 2017
Current tax expense for 2017 (Income taxes payable)
Income tax expense for 2017
$5,070
(7,080)
(2,010)
26,010
$24,000
Prepare the income tax expense section of the income statement for 2017, beginning with the line
“Income before income taxes.” (Enter loss using either a negative sign preceding the number e.g. -
45 or parentheses e.g. (45).)
Waterway Company
Income Statement (Partial)
For the Year Ended December 31, 2017
$
Income before Income Taxes
68,200
Income Tax Expense
$
Current
26,010
Deferred
(2,010)
24,000
$
Net Income / (Loss)
44,200
Note: The details on the current/deferred tax expense may be presented in a note to the financial
statements.
Compute the effective income tax rate for 2017. (Round answer to 1 decimal places, e.g. 25.5%.)
Effective income tax rate
%
35.2
$24,000
= 35.2% effective tax rate for 2017.
$68,200
Exercise 19-11
At the end of 2016, Marigold Company has $180,200 of cumulative temporary differences that will
result in reporting the following future taxable amounts.
2017
$58,600
2018
52,000
2019
39,100
2020
30,500
$180,200
Tax rates enacted as of the beginning of 2015 are:
2015 and 2016
40 %
2017 and 2018
30 %
2019 and later
25 %
Marigold’s taxable income for 2016 is $321,800. Taxable income is expected in all future years.
(a) Prepare the journal entry for Marigold to record income taxes payable, deferred income taxes,
and income tax expense for 2016, assuming that there were no deferred taxes at the end of
2015. (Credit account titles are automatically indented when amount is entered. Do not indent
manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the
amounts.)
Account Titles and Explanation
Income Tax Ex
Debit
Credit
179,300
Income Tax Pa
128,720
Deferred Tax
50,580
(b) Prepare the journal entry for Marigold to record income taxes payable, deferred income taxes,
and income tax expense for 2016, assuming that there was a balance of $22,300 in a Deferred Tax
Liability account at the end of 2015. (Credit account titles are automatically indented when amount
is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles
and enter 0 for the amounts.)
Account Titles and Explanation
Income Tax Ex
Debit
Credit
157,000
Income Tax Pa
128,720
Deferred Tax
28,280
(a)
Taxable income for 2016
$321,800
Enacted tax rate
40%
Income taxes payable for 2016 $128,720
2017
Future Years
2018
2019
2020
Total
Future taxable (deductible)
amounts
$58,600 $52,000 $39,100 $30,500 $180,200
Enacted tax rate
x 30%
x 30%
x 25%
x 25%
Deferred tax liability (asset) $17,580 $15,600
$9,775
$ 7,625
$50,580
Deferred tax liability at the end of 2016
$50,580
Deferred tax liability at the beginning of 2016
0
Deferred tax expense for 2016 (net increase required in deferred tax liability)
50,580
Current tax expense for 2016 (Income taxes payable)
128,720
Income tax expense for 2016
$179,300
(b)
The Income Taxes Payable for 2016 of $128,720 and the $50,580 balance for Deferred Tax
Liability at December 31, 2016, would be computed the same as they were for part (a) of this
exercise. The resulting change in the deferred tax liability and total income tax expense would be
computed as follows:
Deferred tax liability at the end of 2016
$50,580
Deferred tax liability at the beginning of 2016
22,300
Deferred tax expense for 2016 (net increase required in deferred tax liability)
28,280
Current tax expense for 2016 (Income taxes payable)
128,720
Income tax expense for 2016
$157,000
Exercise 19-12
Larkspur Corp. has a deferred tax asset account with a balance of $154,400 at the end of 2016 due
to a single cumulative temporary difference of $386,000. At the end of 2017, this same temporary
difference has increased to a cumulative amount of $494,000. Taxable income for 2017 is
$878,000. The tax rate is 40% for all years. No valuation account related to the deferred tax asset is
in existence at the end of 2016.
(a) Record income tax expense, deferred income taxes, and income taxes payable for 2017,
assuming that it is more likely than not that the deferred tax asset will be realized. (Credit account
titles are automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Income Tax Ex
308,000
Deferred Tax
43,200
Income Tax Pa
Credit
351,200
(b) Assuming that it is more likely than not that $33,000 of the deferred tax asset will not be
realized, prepare the journal entry at the end of 2017 to record the valuation account. (Credit
account titles are automatically indented when amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Income Tax Ex
Debit
Credit
33,000
Allow ance to
33,000
(a)
Taxable income
$878,000
Enacted tax rate
40%
Income tax payable $351,200
Deferred Tax
Date
Cumulative Future Taxable
Tax Rate
(Deductible) Amounts
12/31/17
$(494,000)
40%
(Asset)
Liability
$(197,600)
Deferred tax asset at the end of 2017
$197,600
Deferred tax asset at the beginning of 2017
154,400
Deferred tax benefit for 2017 (increase in deferred tax asset) (43,200)
Current tax expense for 2017 (Income tax payable)
351,200
Income tax expense for 2017
$308,000
Note: Although not requested by the instructions, the pretax financial income can be computed by
completing the following reconciliation:
Pretax financial income for 2017
Originating difference which will result
in future deductible amounts
Taxable income for 2017
$X
a
108,000
$878,000
Solving for pretax financial income:
X + $108,000 = $878,000
X = $770,000 = Pretax financial income
a
$494,000 – $386,000 = $108,000
Exercise 19-15
Taxable income and pretax financial income would be identical for Crane Co. except for its
treatments of gross profit on installment sales and estimated costs of warranties. The following
income computations have been prepared.
Taxable income
2016
2017
2018
$154,000
$191,000
$88,100
Installment gross profit collected
8,500
8,500
8,500
Expenditures for warranties
(4,500 )
(4,500 )
(4,500 )
Excess of revenues over
expenses (excluding two
temporary differences)
Taxable income
$158,000
$195,000
$92,100
Pretax financial income
2016
2017
2018
Excess of revenues over
expenses (excluding two
temporary differences)
$154,000
$191,000
$88,100
Installment gross profit
recognized
25,500
0
0
Estimated cost of warranties
(13,500 )
0
0
$191,000
$88,100
Income before taxes
$166,000
The tax rates in effect are 2016, 40%; 2017 and 2018, 45%. All tax rates were enacted into law on
January 1, 2016. No deferred income taxes existed at the beginning of 2016. Taxable income is
expected in all future years.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2016, 2017, and 2018. (Credit account titles are automatically indented when amount
is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles
and enter 0 for the amounts.)
Date
Dec. 31, 2016
Dec. 31, 2017
Account Titles and Explanation
Debit
Income Tax Ex
66,800
Deferred Tax
4,050
Credit
Income Tax Pa
63,200
Deferred Tax
7,650
Income Tax Ex
85,950
Deferred Tax
Dec. 31, 2018
3,825
Income Tax Pa
87,750
Deferred Tax
2,025
Income Tax Ex
39,645
Deferred Tax
3,825
Income Tax Pa
41,445
Deferred Tax
2,025
December 31, 2016:
Taxable income for 2016
$158,000
Enacted tax rate
40%
Income taxes payable for 2016 $63,200
The deferred tax account balances at December 31, 2016, are determined as follows:
Deferred Tax
Future Taxable
Temporary Difference (Deductible) Amounts Rate (Asset)
Installment sales
Warranty costs
Totals
$17,000
(9,000)
$8,000
45%
45% $(4,050)
$(4,050)
Liability
$7,650
$7,650*
*Because all deferred taxes were computed at the same rate, these totals can be reconciled as
follows: $8,000 x 45% = $(4,050) + $7,650.
Deferred tax liability at the end of 2016
Deferred tax liability at the beginning of 2016
Deferred tax expense for 2016 (net increase required in deferred tax liability)
$7,650
0
$7,650
Deferred tax asset at the end of 2016
$4,050
Deferred tax asset at the beginning of 2016
0
Deferred tax expense (benefit) for 2016 (net increase required in deferred tax asset) $ (4,050)
Deferred tax expense for 2016
Deferred tax benefit for 2016
$7,650
(4,050)
Net deferred tax expense for 2016
Current tax expense for 2016 (Income taxes payable)
Income tax expense for 2016
3,600
63,200
$66,800
December 31, 2017:
Taxable income
$195,000
Enacted tax rate
45%
Income taxes payable for 2017 $87,750
The deferred tax account balances at December 31, 2017, are determined as follows:
Deferred Tax
Future Taxable
Temporary Difference (Deductible) Amounts Rate (Asset)
Installment sales
Warranty costs
Totals
$8,500
(4,500)
$4,000
45%
45% $(2,025)
$(2,025)
Liability
$3,825
$3,825*
*Because all deferred taxes were computed at the same rate, these totals can be reconciled as
follows: $4,000 x 45% = $(2,025) + $3,825.
Deferred tax liability at the end of 2017
$3,825
Deferred tax liability at the beginning of 2017
7,650
Deferred tax benefit for 2017 (decrease required in deferred tax liability) $ (3,825)
Deferred tax asset at the end of 2017
Deferred tax asset at the beginning of 2017
Deferred tax expense for 2017 (decrease required in deferred tax asset)
Deferred tax benefit for 2017
Deferred tax expense for 2017
Net deferred tax benefit for 2017
Current tax expense for 2017 (Income taxes payable)
Income tax expense for 2017
December 31, 2018:
Taxable income for 2018
Enacted tax rate
$92,100
45%
$2,025
4,050
$2,025
$ (3,825)
2,025
(1,800)
87,750
$85,950
Income taxes payable for 2018 $41,445
Deferred tax liability at the end of 2018
0
Deferred tax liability at the beginning of 2018
3,825
Deferred tax benefit for 2018 (decrease required in deferred tax liability) $ (3,825)
Deferred tax asset at the end of 2018
Deferred tax asset at the beginning of 2018
Deferred tax expense for 2018 (decrease required in deferred tax asset)
Deferred tax benefit for 2018
Deferred tax expense for 2018
Net deferred tax benefit for 2018
Current tax expense for 2018 (Income taxes payable)
Income tax expense for 2018
0
2,025
$2,025
$ (3,825)
2,025
(1,800)
41,445
$39,645
Exercise 19-21
The pretax financial income (or loss) figures for Sheridan Company are as follows.
2012
2013
2014
2015
2016
2017
2018
$144,000
242,000
78,000
(144,000)
(377,000)
115,000
106,000
Pretax financial income (or loss) and taxable income (loss) were the same for all years involved.
Assume a 45% tax rate for 2012 and 2013 and a 40% tax rate for the remaining years.
Prepare the journal entries for the years 2014 to 2018 to record income tax expense and the effects
of the net operating loss carrybacks and carryforwards assuming Sheridan Company uses the
carryback provision. All income and losses relate to normal operations. (In recording the benefits
of a loss carryforward, assume that no valuation account is deemed necessary.) (Credit account
titles are automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
2014
Income Tax Ex
31,200
Income Tax Pa
31,200
(To record income tax expense.)
2015
Income Tax Re
64,800
Benefit Due to
64,800
2016
Income Tax Re
31,200
Benefit Due to
31,200
(To record carryback.)
Deferred Tax
119,600
Benefit Due to
119,600
(To record carryforward.)
2017
Income Tax Ex
46,000
Deferred Tax
46,000
2018
Income Tax Ex
42,400
Deferred Tax
42,400
2014 Income Taxes Payable
= ($78,000 x 40%)
= $31,200
2015 Income Tax Refund Receivable
= ($144,000 x 45%)
= $64,800
= ($78,000 x 40%)
= $31,200
2016
Benefit Due to Loss Carryback (Income Tax
Expense)
Benefit Due to Loss Carryforward (Income Tax
Expense)
2017 Deferred Tax Asset
[($377,000 –
$78,000) x 40%]
= $119,600
= ($115,000 x 40%)
= $46,000
=
2018 Deferred Tax Asset
= ($106,000 x 40%)
= $42,400
Note: Benefit Due to Loss Carryback and Benefit Due to Loss Carryforward amounts are
negative components of income tax expense.
Exercise 19-24
Whispering Inc. reports the following pretax income (loss) for both book and tax purposes.
(Assume the carryback provision is used where possible for a net operating loss.)
Year
Pretax
Income (Loss)
Tax Rate
2015
$120,000
40 %
2016
89,000
40 %
2017
(302,000 )
45 %
2018
117,000
45 %
The tax rates listed were all enacted by the beginning of 2015.
Prepare the journal entries for years 2015–2018 to record income tax expense (benefit) and
income taxes payable (refundable), and the tax effects of the loss carryback and loss carryforward,
assuming that based on the weight of available evidence, it is more likely than not that one-half of
the benefits of the loss carryforward will not be realized. (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts.)
Date Account Titles and Explanation
2015
Income Tax Ex
Debit
48,000
Income Tax Pa
2016
Income Tax Ex
48,000
35,600
Income Tax Pa
2017
Credit
35,600
Income Tax Re
83,600
Deferred Tax
41,850
Benefit Due to
83,600
Benefit Due to
41,850
(To record refund.)
Benefit Due to
20,925
Allow ance to
20,925
(To record allowance.)
2018
Income Tax Ex
52,650
Deferred Tax
41,850
Income Tax Pa
10,800
(To record income taxes.)
Allow ance to
20,925
Benefit Due to
20,925
(To adjust allowance.)
2015
Income Taxes Payable
= ($120,000 x 40%)
= $48,000
2016
Income Taxes Payable
= ($89,000 x 40%)
= $35,600
2017
Benefit Due to Loss Carryback
=
Benefit Due to Loss Carryforward
2018
[40% x $(120,000)] + [40% x
= $83,600
$(89,000)]
45% x ($302,000 –
=
= $41,850
$120,000 – $89,000)
Allowance to Reduce Deferred Tax Asset to
Expected Realizable Value
= (50% x $41,850)
Income Taxes Payable
=
[($117,000 – $93,000) x
45%]
= $20,925
= $10,800
Prepare the income tax section of the 2017 income statement beginning with the line “Operating
loss before income taxes.” (Enter loss using either a negative sign preceding the number e.g. -45 or
parentheses e.g. (45).)
Whispering Inc.
Income Statement (Partial)
For the Year Ended December 31, 2017
Operating Loss before Income Taxes
$
(302,000)
Income Tax Benefit
Benefit Due to Loss Carryback
Benefit Due to Loss Carryforw ard
$
83,600
20,925
104,525
$
Net Income / (Loss)
(197,475)
Benefit due to loss carryforward = ($41,850 – $20,925) = $20,925
Prepare the income tax section of the 2018 income statement beginning with the line “Income
before income taxes.” (Enter loss using either a negative sign preceding the number e.g. -45 or
parentheses e.g. (45).)
Whispering Inc.
Income Statement (Partial)
For the Year Ended December 31, 2018
$
Income before Income Taxes
117,000
Income Tax Expense
$
Current
10,800
Deferred
41,850
Income Tax Benefit Due to Loss Carryforw ard
(20,925)
31,725
$
Net Income / (Loss)
85,275
Problem 19-5
Marin Inc. reported the following pretax income (loss) and related tax rates during the years 2013–
2019.
Pretax Income (loss)
2013
$42,900
Tax Rate
30 %
2014
26,500
30 %
2015
47,400
30 %
2016
82,600
40 %
2017
(166,700 )
45 %
2018
67,300
40 %
2019
94,600
35 %
Pretax financial income (loss) and taxable income (loss) were the same for all years since Marin
began business. The tax rates from 2016–2019 were enacted in 2016.
Prepare the journal entries for the years 2017–2019 to record income taxes payable (refundable),
income tax expense (benefit), and the tax effects of the loss carryback and carryforward. Assume
that Marin elects the carryback provision where possible and expects to realize the benefits of any
loss carryforward in the year that immediately follows the loss year. (Credit account titles are
automatically indented when amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the amounts.)
Date Account Titles and Explanation
2017
Income Tax Re
Debit
Credit
47,260
Benefit Due to
47,260
(To record carryback.)
Deferred Tax
14,680
Benefit Due to
14,680
(To record carryforward.)
2018
2019
Income Tax Ex
Deferred Tax
14,680
Income Tax Pa
12,240
Income Tax Ex
Income Tax Pa
2017
26,920
33,110
33,110
Income Tax Refund Receivable = [($47,400 x 30%) + ($82,600 x 40%)]
= $47,260
Benefit Due to Loss Carryforward = ($166,700 – $47,400 – $82,600 = $36,700)
= ($36,700 x 40%)
= $14,680
2018
Income Taxes Payable
= [($67,300 – $36,700) x 40%]
= $12,240
2019
Income Taxes Payable
= ($94,600 x 35%)
= $33,110
Prepare the portion of the income statement, starting with “Operating loss before income taxes,”
for 2017. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g.
(45).)
Marin Inc.
Income Statement (Partial)
For the Year Ended December 31, 2017
$
Operating Loss before Income Taxes
(166,700)
Income Tax Benefit
$
Benefit Due to Loss Carryback
47,260
Benefit Due to Loss carryforw ard
14,680
61,940
$
Net Income / (Loss)
(104,760)
Prepare the portion of the income statement, starting with “Income before income taxes,” for
2018. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g.
(45).)
Marin Inc.
Income Statement (Partial)
For the Year Ended December 31, 2018
$
Income before Income Taxes
67,300
Income Tax Expense
Current
$
12,240
Deferred
14,680
26,920
Net Income / (Loss)
Loss (2017)
($166,700)
Loss carryback (2015)
47,400
Loss carryback (2016)
82,600
Loss carryforward (2017)
(36,700)
Taxable income 2018 before carryforward
67,300
Taxable income 2018
30,600
Enacted tax rate for 2018
40%
Income taxes payable for 2018
$12,240
$
40,380