CHAPTER 21
ACCOUNTING FOR INCOME TAX
Basic problems
Problem 21-1 (IAA)
Hilton Company reported pretax financial income of P6,200,000 for the current year. Included in
other income was P200,000 of tax-exempt interest revenue from government bonds held by the
entity.
The income statement included depreciation expense of P500,000 for a machine with cost of
P3,000,000. The income tax return reported P600,000 as depreciation on the machine. The
enacted tax rate is 30% for the current year and future years.
What amount should be reported as current tax expense for the current year?
Problem 21-2 (LAA)
Tantrum Company began operations at the beginning of the current year. At the end of the first
year of operations the entity reported P 6,000,000 income before income tax in the income
statement but only P5,100,000 taxable in the tax return.
Analysis of the P900,000 difference revealed that P500,000 was a permanent difference and
P400,000 was a temporary tax liability difference related to a current asset.
The enacted tax rate for the current year and future years is 30%. 1. What amount should be
reported as current tax expense? 2. What amount should be reported as total income tax expense
in the income statement for the current year?
Problem 21-3 (LAA)
During the current year, Tiger Company reported pretax financial income P5,000,000. Included
in the pretax financial income are P900,000 of nontaxable life insurance proceeds received as a
result of the death of an officer, P1,200,000 of estimated warranty expense policy for an officer.
accrued at year-end and P200,000 of life insurance premiums for a no income tax was previously
paid during the year and the income tax rate is 30%. 1. What amount should be reported as
income tax payable at year-end? 2. What amount should be reported as total tax expense?
Problem 21-4 (AICPA Adapted)
Viking Company reported pretax income of P1,000,000 in the income statement for the current
year.
Tax return
Accounting record
Rent income
70,000
120,000
Depreciation
280,000
220,000
Payment of penalty
10,000
Premiums on officers' life insurance
90,000
Income tax rate
30%
1. What amount should be reported as current provision for income tax for the current year?
2. What amount should be reported as total tax expense?
Problem 21-5 (AICPA Adapted)
Pine Company reported pretax financial income of P800,000 for the current year.
In the computation of income taxes, the following data were considered.
Nontaxable gain
350,000
Depreciation deducted for tax purposes in excess of
depreciation deducted for book purposes
Estimated tax payment during the year
Enacted tax rate
50,000
70,000
30%
1.What amount should be reported as current tax liability or income tax payable at year-end?
2. What amount should be reported as total income tax expense?
Problem 21-6 (PHILCPA Adapted)
During the current year, Everlasting Company reported accounting income of P9,000,000 before
income tax. The entity revealed the following information for the current year: Interest income
on government bonds, 700,000; Depreciation claimed on tax return in excess of depreciation per
book, 1,300,000
Warranty expense on the accrual basis
600,000
Actual warranty payment
300,000
Income from installment sale reported for tax
purposes in excess of income recognized per book
income tax rate
200,000
30%
What amount should be reported as current tax liability at year-end?
Problem 21-7 (IFRS)
Canterbury Company made an accounting profit of P4,000,000 for the current year which
included the following items of income and expense:
Donation to political parties (nondeductible)
1,000,000
Depreciation 20%
1,600,000
Annual leave expense
700,000
Rent revenue
1,200,000
Income tax rate
30%
For tax purposes, the depreciation rate is 25%, the annual leave paid is P800,000 and the rent
received is P1,000,000. The entity followed the cash basis for tax purposes.
What amount should be reported as current tax liability at year-end?
Problem 21-8 (AICPA Adapted)
Dunn Company reported in the income statement for the current year
P900,000 income before provision for income tax.
Rent received in advance
150,000
Interest income on time deposit
200,000
Depreciation deducted for income tax purposes
100,000
in excess of financial depreciation
Income tax rate
30%
1. What amount should be reported as current provision for income tax or current tax expense for
the current year?
2. What amount should be reported as total tax expense?
Problem 21-9 (PHIL.CPA Adapted)
Cascade Company is determining the amount of the pretax accounting income for the current
year by making adjustment to taxable income from the income tax return.
The tax return showed taxable income of P4,000,000 on which a tax liability of P1,200,000 has
been recognized.
The entity provided the following items that may be required to determine pretax accounting
income from the amount of taxable income:
Accelerated depreciation for income tax purposes was P500,000. Straight line financial
depreciation on these assets is P400,000.
Goodwill impairment loss of P300,000 was not included as a deduction in the tax return but may
be deducted in the income statement.
Interest income on treasury bills was not included in the tax return. During the year, P600,000
was received on these investments.
What is the pretax accounting income for the current year?
Problem 21-10 (AICPA Adapted)
Jasco Company is in the first year of operations and reported pretax accounting income of
P4,000,000.
The entity provided the following information for the first year:
Premium on life insurance of key officer
100,000
Depreciation on tax return in excess of book depreciation
200,000
Tax-exempt interest income
50,000
Warranty expense
40,000
Actual warranty repairs
30,000
Doubtful accounts expense
60,000
Writeoff of uncollectible accounts
20,000
Rent received in advance
300,000
What amount should be reported as taxable income?