EXERCISES
Exercise 16-1
Temporary
difference; taxable
income given
LO16-1
Text: E 16-1
Exercise 16-2
Temporary
difference; income
tax payable given
LO16-2
Text: E 16-4
Exercise 16-3
Deferred tax asset;
taxable income
given; previous
balance in
valuation
allowance
LO16-2 LO16-3
Text: E 16-11
Stancil Industries reports pretax accounting income of $80 million, but due
to a single temporary difference, taxable income is only $50 million. At the
beginning of the year, no temporary differences existed.
Required:
Assuming a tax rate of 35%, prepare the appropriate journal entry to record
Stancil’s income taxes.
In 2016, Lambert Services collected rent revenue for 2017 tenant occupancy.
For income tax reporting, the rent is taxed when collected. For financial
statement reporting, the rent is recognized as income in the period earned. The
unearned portion of the rent collected in 2016 amounted to $90,000 at
December 31, 2016. Lambert had no temporary differences at the beginning of
the year.
Required:
Assuming an income tax rate of 40%, and that the 2016 income tax payable is
$285,000, prepare the journal entry to record income taxes for 2016.
At the end of 2015, Mathis Industries had a deferred tax asset account with a
balance of $120 million attributable to a temporary book-tax difference of $300
million in a liability for estimated expenses. At the end of 2016, the temporary
difference is $280 million. Mathis has no other temporary differences. Taxable
income for 2016 is $720 million and the tax rate is 40%.
Mathis has a valuation allowance of $40 million for the deferred tax asset at
the beginning of 2016.
Required:
1. Prepare the journal entry(s) to record Mathis’s income taxes for 2016
assuming it is “more likely than not” that the deferred tax asset will be
realized.
2. Prepare the journal entry(s) to record Mathis’s income taxes for 2016
assuming it is “more likely than not” that one-half of the deferred tax asset
will not ultimately be realized.
Alternate Exercises and Problems
Copyright © 2015 McGraw-Hill Education. All rights reserved.
16-1
Exercise 16-4
Multiple
differences;
calculate taxable
income
LO16-1 LO16-4
Text: E 16-13
Exercise 16-5
Intraperiod tax
allocation
LO16-10
Text: E 16-29
Fessler Transport began operations in January 2016, and purchased a delivery
truck for $160,000. Fessler plans to use straight-line depreciation over a fouryear expected useful life for financial reporting purposes. For tax purposes, the
deduction is 50% of cost in 2016, 30% in 2017 and 20% in 2018. Pretax
accounting income for 2016 was $900,000, which includes interest revenue of
$160,000 from municipal bonds. The enacted tax rate is 40%.
Required:
Assuming no differences between accounting income and taxable income
other than those described above:
1. Prepare the journal entry to record income taxes in 2016.
2. What is Fessler’s 2016 net income?
The following income statement does not reflect intraperiod tax allocation.
Income Statement
For the fiscal year ended June 30, 2016
($ in millions)
Revenues
Cost of goods sold
Gross profit
Operating expenses
Income tax expense
Income before discontinued operations and extraordinary item
Loss from discontinued operations
Net income
The company’s tax rate is 40%.
$415
(175)
$240
(90)
(44)
$106
(40)
$ 66
Required:
Recast the income statement to reflect intraperiod tax allocation.
16-2
Copyright © 2015 McGraw-Hill Education. All rights reserved.
Intermediate Accounting, 8/e
PROBLEMS
Problem 16-1
Change in tax rate;
single temporary
difference
LO16-5
Text: P 16-3
Commercial Development began operations in December 2016. When lots
for industrial development are sold, Commercial recognizes income for
financial reporting purposes in the year of the sale. For some lots, Commercial
recognizes income for tax purposes when collected. Income recognized for
financial reporting purposes in 2016 for lots sold this way was $48 million
which will be collected over the next three years. Scheduled collections for
2017-2019 are as follows:
2017
$ 16 million
2018
20 million
2019
12 million
$48 million
Pretax accounting income for 2016 was $68 million. The enacted tax rate is
40 percent.
Required:
1. Assuming no differences between accounting income and taxable income
other than those described above, prepare the journal entry to record income
taxes in 2016.
2. Suppose a new tax law, revising the tax rate from 40% to 35%, beginning in
2018, is enacted in 2017, when pretax accounting income was $60 million.
Prepare the appropriate journal entry to record income taxes in 2017.
3. If the new tax rate had not been enacted, what would have been the
appropriate balance in the deferred tax liability account at the end of 2017?
Why?
Alternate Exercises and Problems
Copyright © 2015 McGraw-Hill Education. All rights reserved.
16-3
Problem 16-2
Net operating loss
carryback and
carryforward;
temporary
difference;
permanent
difference
LO16-2 LO16-4
LO16-7
Text: P 16-10
CPS Corporation reported a pretax operating loss of $540,000 for financial
reporting purposes in 2016. Contributing to the loss were (a) a penalty of
$20,000 assessed by the Environmental Protection Agency for violation of a
federal law and paid in 2016 and (b) an estimated loss of $40,000 from accruing
a loss contingency. The loss will be tax deductible when paid in 2017.
The enacted tax rate is 40%. There were no temporary differences at the
beginning of the year and none originating in 2016 other than those described
above. Taxable income in CPS’s two previous years of operation was as
follows:
2014
300,000
2015
120,000
Required:
1. Prepare the journal entry to recognize the income tax benefit of the net
operating loss in 2016. CPS elects the carryback option.
2. Show the lower portion of the 2016 income statement that reports the
income tax benefit of the net operating loss.
3. Prepare the journal entry to record income taxes in 2017 assuming pretax
accounting income is $240,000. No additional temporary differences
originate in 2017.
16-4
Copyright © 2015 McGraw-Hill Education. All rights reserved.
Intermediate Accounting, 8/e