Tax rate

35%
2012
2013
$ 2,300,000.00 $ 2,400,000.00

Income before taxes

Permanent differences:
Tax exempt interest on municipal bonds
Financial income subject to tax
Timing differences:
Tax depreciation in excess of book
Taxable income

$ (150,000.00)
$ 2,250,000.00
$ (75,000.00)
$ 2,175,000.00

Journal entry:

DR(CR)

Tax expense
Deferred income tax liabiliity
Taxes payable
Depreciation:
Book
Tax depreciation amount
book > tax; (tax > book)

$ 787,500.00
$ (26,250.00)
$ (761,250.00)
2012
$
50,000.00 $
$ 175,000.00 $
$ (125,000.00) $
2012
DR(CR)

Deferred Tax Liability Balances:

beginning
change during year
ending
Balance Sheet Presentation:
Deferred Taxes (long term)

Ambrosia Corporation's lead accountan

The Ambrosia Corporation's lead accoun
On Jan 1, 2012, Ambrosia purchased a b
A) Straight-line basis depreciation for 5
B) Half year convention for 8 years for fi
C) Tax- exempt municipal bonds yielded
D) Pretax financial income is $2300000 i
E) The company recognized an extraord
(which is fully taxable).
F) Taxable income is expected in future
Required:
Prepare the journal entries for income t
deferred taxes for 2013.

2013
2014
2015
100,000.00 $ 100,000.00 $ 100,000.00
175,000.00 $ 175,000.00 $ 175,000.00
(75,000.00) $ (75,000.00) $ (75,000.00)
2013
DR(CR)

2014
DR(CR)

2015
DR(CR)

0 $ (125,000.00) $ (200,000.00) $ (275,000.00)

$ (125,000.00) $ (75,000.00) $ (75,000.00) $ (75,000.00)
$ (125,000.00) $ (200,000.00) $ (275,000.00) $ (350,000.00)

2012
125,000.00 $

Bottom of Income Statement:

Income before extraordinary item and taxes
Tax provision (expense)
Income before extraordinary item
Extraordinary taxes, net of taxes
Net Income

$
$
$
$
$

2013
2014
2015
200,000.00 $ 275,000.00 $ 350,000.00
2013
2,250,000.00
735,000.00
1,515,000.00
97,500.00
1,612,500.00

Corporation's lead accountant shows

osia Corporation's lead accountant shows the following info:
2012, Ambrosia purchased a bottling machine for $800000
line basis depreciation for 5 years for tax purposes
ar convention for 8 years for financial reporting (See Appendix 11A.)
empt municipal bonds yielded interest of $150000 in 2013.
financial income is $2300000 in 2012 and $2400000 in 2013.
mpany recognized an extraordinary gain of $150000 in 2013
ully taxable).
income is expected in future years with an expected tax rate of 35%.

he journal entries for income tax expense, income taxes payable, and
axes for 2013.

2016
2017
2018
2019
$ 100,000.00 $ 100,000.00 $ 100,000.00 $ 100,000.00 $
$ 175,000.00
$ (75,000.00) $ 100,000.00 $ 100,000.00 $ 100,000.00 $
2016
DR(CR)

2017
DR(CR)

2018
DR(CR)

2019
DR(CR)

2020
50,000.00
50,000.00
2020
DR(CR)

$ (350,000.00) $ (425,000.00) $ (325,000.00) $ (225,000.00) $ (125,000.00)

$ (75,000.00) $ 100,000.00 $ 100,000.00 $ 100,000.00 $ 50,000.00
$ (425,000.00) $ (325,000.00) $ (225,000.00) $ (125,000.00) $ (75,000.00)
2016
2017
2018
2019
$ 425,000.00 $ 325,000.00 $ 225,000.00 $ 125,000.00 $

2020
75,000.00