EXERCISES
Exercise 16-1
Requirement 1
Since taxable income is less than pretax accounting income, a future taxable
amount will occur when the temporary difference reverses. This means a deferred tax
liability should be recorded to reflect the future tax consequences of the temporary
difference.
Income tax expense (to balance)
Deferred tax liability ([$400,000 - 250,000] x 35%)
Income tax payable ($250,000 x 35%)
140,000
52,500
87,500
As a result, net income is $260,000:
Pretax accounting income
Income tax expense
Net income
$400,000
140,000
$260,000
Requirement 2
In its balance sheet, Alvis will report the $52,500 deferred tax liability among
either its current or long-term liabilities depending on the cause of the temporary
difference and the $87,500 income tax payable as a current liability.
Solutions Manual, Vol.2, Chapter 16
© The McGraw-Hill Companies, Inc., 2009
16-15
Exercise 16-2
Income tax expense (to balance)
Deferred tax asset ($300,000 x 40%)
Income tax payable (given)
830,000
120,000
950,000
Exercise 16-3
Income tax expense (to balance)
Deferred tax asset ([$1 million x 40%] - $435,000)
Income tax payable ($75 million x 40%)
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16-16
30,035,000
35,000
30,000,000
Intermediate Accounting, 5e
Exercise 16-8
($ in millions)
December 31
2009
Depreciable asset (net):
Accounting basis
Tax basis
TEMPORARY DIFFERENCE
$80 (20)
80 (25)
5
Tax rate
2010
$60 (20)
55 (33)
$ 5 13
40%
DEFERRED TAX LIABILITY
$ 2
↑
↑
originating
differences
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16-22
2011
$40 (20)
22 (15)
$18 (5)
2012
$20 (20) $0
7 (7) 0
$13 (13) $0
40%
40%
$7.2
$ 5.2
↑
40%
$0
↑
reversing
differences
Intermediate Accounting, 5e
Exercise 16-9
D
1. Accrual of loss contingency, tax-deductible when paid.
D
2. Newspaper subscriptions; taxable when received, recognized for
financial reporting when earned.
T
3. Prepaid rent, tax-deductible when paid.
D
4. Accrued bond interest expense; tax-deductible when paid.
T
5. Prepaid insurance, tax-deductible when paid.
D
6. Unrealized loss from recording investments available for sale at fair
value (tax-deductible when investments are sold).
D
7. Bad debt expense; allowance method for financial reporting; direct
write-off for tax purposes.
D
8. Advance rent receipts on an operating lease (as the lessor), taxable
when received.
T
9. Straight-line depreciation for
depreciation for tax purposes.
D
financial
reporting;
accelerated
10. Accrued expense for employee postretirement benefits; tax-deductible
when subsequent payments are made.
Solutions Manual, Vol.2, Chapter 16
© The McGraw-Hill Companies, Inc., 2009
16-23
Exercise 16-10
1.
Liability – loss contingency
2.
Liability – subscriptions
3.
Prepaid rent
4.
Accrued bond interest payable
5.
Prepaid insurance
6.
Unrealized loss on investments (shareholders’ equity account)
7.
Allowance for uncollectible accounts; and thus accounts receivable (net)
8.
Liability – unearned rent
9.
Accumulated depreciation; and thus depreciable assets (net)
10.
Liability – postretirement benefits
© The McGraw-Hill Companies, Inc., 2009
16-24
Intermediate Accounting, 5e
Exercise 16-11
Requirement 1
($ in thousands)
Current
Year
2009
Pretax accounting income
Non-temporary difference:
Municipal bond interest
Temporary difference:
Depreciation
300
Taxable income (income tax return)
250
Enacted tax rate
Tax payable currently
Deferred tax liability
40%
100
Future
Taxable
Amounts
(40)
(10)
10
40%
4
↓
Deferred tax liability:
Ending balance (balance currently needed)
Less: beginning balance
Change needed to achieve desired balance
Journal entry at the end of 2009
Income tax expense (to balance)
Deferred tax liability (determined above)
Income tax payable (determined above)
$4
0
$4
104
4
100
Requirement 2
($ in thousands)
Pretax income
Income tax expense
Net income
Solutions Manual, Vol.2, Chapter 16
$300
(104)
$196
© The McGraw-Hill Companies, Inc., 2009
16-25
Exercise 16-17
Requirement 1
($ in millions)
Income tax expense (to balance)................................................
Deferred tax asset ($25 million x 40%) .......................................
Deferred tax liability ($80 million x 40%) ..............................
Income tax payable ($145 million x 40%)...............................
80
10
32
58
Requirement 2
($ in millions)
Pretax income
Income tax expense
Net income
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16-32
$200
(80)
$120
Intermediate Accounting, 5e
Exercise 16-20
Requirement 1
($ in thousands)
Current
Year
2009
Pretax accounting income
Non-temporary difference:
Municipal bond interest
Temporary differences:
Depreciation
Warranty expense
977
Taxable income (income tax return)
900
Enacted tax rate
Tax payable currently
Deferred tax liability
Deferred tax asset
40%
360
Future
Taxable
Amounts
Future
Deductible
Amounts
(32)
(55)
10
85
(10)
40%
40%
34
(4)
↓
↓
Deferred tax
liability
Ending balances (balances currently needed):
Less: beginning balances:
Change needed to achieve desired balances
Journal entry at the end of 2009
Income tax expense (to balance)
Deferred tax asset (determined above)
Deferred tax liability (determined above)
Income tax payable (determined above)
$34
(12)
$22
Deferred tax
asset
$ 4
(0)
$4
378
4
22
360
Requirement 2
($ in thousands)
Pretax income
Income tax expense
Net income
Solutions Manual, Vol.2, Chapter 16
$ 977
(378)
$599
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16-35