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Text Page 992 Modified - 13th

VIEWS: 5 PAGES: 3

									                                Text Illustration – Page 992 Modified

Changes: Tax rate enacted for 2011 is 35% and for 2012 is 30%.

                                                2010
Reconciliation of book and tax income:
  Pretax financial income                                            $70,000
  Permanent differences:
     (none)                                                                  0
  Pretax financial income subject to tax                                70,000
  Change in cumulative temporary differences (CTD):
     Revenue recognition                                             (30,000)
  Taxable income                                                     $40,000

Schedule of cumulative temporary differences 12/31/10:

                                                       Taxable (Deductible)
                      CTD          Change   CTD          in Future Years
                      1/1/10       in CTD 12/31/10        2011      2012
   Taxable CTD:
    Revenue recognition    $0 $30,000 $30,000           $20,000 $10,000
   Deductible CTD:
                            0           0        0
   Tax rate                                                 35%         30%


Entries for 2010:

   Tax expense - current                                                16,000
      Tax payable ($40,000 X 40% tax rate of 2010))                                16,000

   Tax expense - deferred                                               10,000a
      DTL (revenue recognition)                                                    10,000
  a
   DTL 12/31/10:
      $20,000 X 35% [tax rate currently enacted for 2011]               $7,000
      $10,000 X 30% [tax rate currently enacted for 2012]                3,000    $10,000
   DTL 1/1/10                                                                           0
   Deferred tax expense (benefit) - 2010                                          $10,000


Partial income statement for 2010:

   Income before income taxes                                                     $70,000
   Income tax expense (benefit):
      Current                                                        $16,000
      Deferred                                                        10,000        26,000
   Net income                                                                     $ 44,000
                                Text Illustration – Page 992 Modified
                                                 2011

Reconciliation of book and tax income:
  Pretax financial income                                           $70,000
  Permanent differences:
     (none)                                                                  0
  Pretax financial income subject to tax                                70,000
  Change in cumulative temporary differences (CTD):
     Revenue recognition                                             20,000
  Taxable income                                                    $90,000

Schedule of cumulative temporary differences 12/31/11:

                                                      Taxable (Deductible)
                      CTD          Change   CTD         in Future Years
                      1/1/11       in CTD 12/31/11       2012
   Taxable CTD:
      Rev. recog.    $30,000 $(20,000) $10,000         $10,000
   Deductible CTD:
                            0           0        0
   Tax rate                                                 30%


Entries for 2011:

   Tax expense - current                                                31,500
      Tax payable ($90,000 X 35% tax rate of 2011)                                 31,500

   Deferred DTL (revenue recog.)                                         7,000a
      Tax expense - deferred                                                        7,000
  a
   DTL 12/31/11:
      $10,000 X 30% [tax rate currently enacted for 2012]                         $ 3,000
   DTL 1/1/11                                                                      10,000
   Deferred tax expense (benefit) - 2011                                          $(7,000)


Partial income statement for 2011:

   Income before income taxes                                                     $70,000
   Income tax expense (benefit):
      Current                                                       $31,500
      Deferred                                                       (7,000)        24,500
   Net income                                                                     $ 45,500
                                Text Illustration – Page 992 Modified
                                                 2012

Reconciliation of book and tax income:
  Pretax financial income                                           $70,000
  Permanent differences:
     (none)                                                                  0
  Pretax financial income subject to tax                                70,000
  Change in cumulative temporary differences (CTD):
     Revenue recognition                                             10,000
  Taxable income                                                    $80,000

Schedule of cumulative temporary differences 12/31/12:

                                                      Taxable (Deductible)
                       CTD         Change   CTD         in Future Years
                       1/1/12      in CTD 12/31/12       2013
   Taxable CTD:
      Rev. recog.     $10,000 $(10,000)     $    0       $    0
   Deductible CTD:
                            0           0        0
   Tax rate                                                  40%


Entries for 2012:

   Tax expense - current                                                24,000
      Tax payable ($80,000 X 30% tax rate of 2012)                                 24,000

   Deferred DTL (revenue recog.)                                         3,000a
      Tax expense - deferred                                                          3,000
  a
   DTL 12/31/12                                                                   $      0
   DTL 1/1/12                                                                        3,000
   Deferred tax expense (benefit) - 2012                                           $(3,000)


Partial income statement for 2012:

   Income before income taxes                                                     $70,000
   Income tax expense (benefit):
      Current                                                       $24,000
      Deferred                                                       (3,000)        21,000
   Net income                                                                     $ 49,000

								
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