Prob-41-43 - Belk College Of Business

					Prob-41-43                         0dbd453b-7fb7-4880-9aa1-c74b492fcf12.xlsx                                                  Page 1 of 2
No. 41 Kantner, Inc. is a domestic corp. has this balance sheets at end of current year.
       Determine net deferred tax asset or net deferred tax liability at year-end.
       (34% tax rate, no valuation allowance)
       The differences in book and tax basis of each asset and liability are as follows.
                                                                           Tax                Book
         Assets                                                     Debit/(Credit) Debit/(Credit)            Difference
               Cash                                                        $1,000          $1,000                     $0
               Accounts Receivable                                         $9,000          $9,000                     $0
               Buildings                                                $850,000       $850,000                       $0
                Acc. Depreciation                                      ($700,000)     ($620,000)                ($80,000)
               Furniture & Fixtures                                       $40,000        $40,000                      $0
                Acc. Depreciation                                        ($10,000)        ($8,000)               ($2,000)
                   Total Assets                                           $190,000            $272,000          ($82,000)
                 Liabilities
                 Accrued Warranty Expense                                       $0             ($40,000)         $40,000
                 Note Payable                                             ($16,000)            ($16,000)              $0
                   Total Liabilities                                      ($16,000)            ($56,000)         $40,000
                 Stockholder Equity
                 Paid in Capital                                          ($50,000)           ($50,000)
                 Retained Earnings                                       ($124,000)          ($166,000)
                  Total Liabilities & Owner Equity                       ($190,000)          ($272,000)
         Given these basis differences, the gross DTA and gross DTL are calculated as follows, with the net result a DTL of $14,280.
                 Gross Deferred Tax Asset                                  $40,000               34%             $13,600
                 Gross Deferred Tax Liability                              $82,000               34%             $27,880
                 Net Deferred Tax Liability                                                                      $14,280
No. 42 Continue Problem 41. Use this beginning of year info. Determine change in deferred tax assets
                                                                     Beg. Of Year
              Accrued Warranty Expense                                     $30,000
              Applicable Tax Rate                                              34%
              Gross deferred tax asset (end of prev. year)                 $10,200

                                                                               Current Year
                                                                    Beginning of                 End of
                                                                    Current YearDifference    Current Year
                 Accrued Warranty Expense                                $30,000     $10,000       $40,000
                 Subtotal for all deferred assets                        $30,000     $10,000       $40,000
                 Applicable Tax Rate                                         34%         34%           34%
                 Gross Deferred Tax Asset                                $10,200                   $13,600
                 Change in Deferred Tax Asset                                         $3,400
         Question - if we paid $100,000 for warranty repairs in current year, what was our warranty expense?
No. 43   Continue Problem 41. Use this beginning of year info. Determine change in deferred tax liabilities
                                                                                         Beg. of Year
           Building - Accumulated Depreciation                                                ($62,000)
           Furniture and Fixtures - Accumulated Depreciation                                   ($4,000)
           Subtotal for all deferred liabilities                                              ($66,000)
                  Applicable Tax Rate                                                              34%
                  Gross deferred tax liability (end of prev. year)                            ($22,440)
                                                                 Beginning               Current Year            End
                                                                   of Year                Difference           of Year
                  Building – Acc. Depreciation                      ($62,000)                 ($18,000)         ($80,000)
                   Furniture & fixtures – Acc. Depreciation             ($400)                 ($1,600)          ($2,000)
                  Subtotal                                          ($62,400)                 ($19,600)         ($82,000)
                  Applicable tax rate                                  34%                     34%                 34%
                  Gross deferred tax liability                      ($21,216)                                   ($27,880)
                  Change in Deferred Tax Liability                                              ($6,664)
Prob-44-48                         0dbd453b-7fb7-4880-9aa1-c74b492fcf12.xlsx                                  Page 2 of 2
No. 44   Based on Prob 41-43, determine change in Net deferred tax asset or liability. Provide journal entry
                                                                  Beginning          Current Year            End
                                                                   of Year             Difference          of Year
         Gross Deferred Tax Asset                                      $10,200                              $13,600
         Change in Deferred Tax Asset                                                       $3,400
         Gross deferred tax liability                                  ($21,216)                            ($27,880)
         Change in Deferred Tax Liability                                                  ($6,664)
         Net Deferred Tax Asset / (Deferred Tax Liability)             ($11,016)        ($3,264)            ($14,280)

                  The journal entry to record the deferred tax liability is as follows.
                  Income Tax Expense                               $3,264
                    Deferred Tax Liability                                           $3,264

No. 45   Book income before tax was $50,000. Company had municipal bond interest of $7,800 and $850 of
No. 46   non-deductible meals and entertainment. Compute current income tax expense. Provide journal entry.
                  Pre-tax Book Income                                  $50,000
                  Book-Tax Adjustments
                  Permanent Items
                     Tax Exempt Income                                  ($7,800)
                     Nondeductible M&E                                    $850
                  Temporary Differences
                     Building Depreciation                             ($18,000)
                     Furniture & Fixtures Depreciation                  ($1,600)
                     Accrued Warranty Expenses                          $10,000
                  Taxable Income                                        $33,450
                  Current Tax Expense (34%)                             $11,373

         Income Tax Expense                                            $11,373
           Current Income Tax Payable                                                      $11,373

No. 47   Compute total provision for income tax
          Book Net Income Before Tax                            $50,000
          Provision for Income Tax Expense*                    ($14,637)
           Net Income After Tax                                 $35,363
                *Current tax of $11,373 + DTL of $3,264 = $14,637

No. 48   Footnote for tax rate reconciliation.                            $                 %
               Tax on Book Income at Statutory Rate                    $17,000              34.00%
                Tax Exempt Income                                      ($2,652)             -5.30%
                Non-deductible Meals & Entertainment                     $289                0.58%
         Provision for Income Tax Expense                              $14,637              29.28%

				
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