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1.Oxford Corporation began operations in 2012 and reported pretax financial income of $227,110 for the year. Oxfords tax depre ciation exceeded its book depreciation by $39,100. Oxfords tax rate for 2012 and years thereafter is 30%. In its December 31, 2012, balance sheet, what amount of deferred tax liability should be reported?

Deferred tax liability to be reported Excess depreciation on tax return Tax rate Deferred tax liability

$ $39,100 x 30% $11,730

2. At December 31, 2012, Percheron Inc. had a deferred tax asset of $36,670. At December 31, 2013, the deferred tax asset is $61,870. The
corporations 2013 current tax expense is $61,730. What amount should Percheron report as total 2013 tax expense?

Total income tax expense for 2013 Deferred tax asset, 12/31/13 Deferred tax asset, 12/31/12 Deferred tax benefit for 2013 Current tax expense for 2013 Total income tax expense for 2013

$ $61,870 36,670 (25,200) 61,730 $36,530

3. Conlin Corporation had the following tax information.

Year 2010 2011 2012 Taxable Income $308,100 $334,000 $407,000 Tax Rate 40% 35% 35% Taxes Paid $123,240 $116,900 $142,450

In 2013, Conlin suffered a net operating loss of $478,400, which it elected to carry back. The 2013 enacted tax rate is 34%. Prepare Conlins entry to record the effect of the loss carryback. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

4.
Starfleet Corporation has one temporary difference at the end of 2012 that will reverse and cause taxable amounts of $57,100 in 2013, $63,520 in 2014, and $80,780 in 2015. Starfleets pretax financial income for 2012 is $445,620, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2012.

(a) and (b) (a) Compute taxable income and income taxes payable for 2012.

Taxable income Income taxes payable

$ $

(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2012. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

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Pretax financial income for 2012 $445,620 Temporary difference resulting in future taxable amounts in 2013 (57,100) in 2014 (63,520) in 2015 (80,780) Taxable income for 2012 $244,220 Taxable income for 2012 $244,220 Enacted tax rate 30% Income taxes payable for 2012 $73,266 Future Years 2013 2014 2015 Total Future taxable (deductible) amounts $57,100 $63,520 $80,780 $201,400 Tax rate x 30% x 30% x 30% Deferred tax liability (asset) $17,130 $19,056 $24,234 $60,420 Deferred tax liability at the end of 2012 $60,420 Deferred tax liability at the beginning of 2012 0 Deferred tax expense for 2012 (increase in deferred tax liability) 60,420 Current tax expense for 2012 (Income taxes payable) 73,266 Income tax expense for 2012 $133,686

5. Complete the following statements by filling in the blanks.

(a) In a period in which a taxable temporary difference reverses, the reversal will cause taxable income to be pretax financial income. If a $78,670 balance in Deferred Tax Asset was computed by use of a 40% rate, the underlying cumulative temporary difference amounts to $ (c) (d) Deferred taxes recorded to account for permanent differences. .

(b)

(e)

If a taxable temporary difference originates in 2013, it will cause taxable income for 2013 to be pretax financial income for 2013. If total tax expense is $57,590 and deferred tax expense is $74,500, then the current portion of the expense computation is referred to as current tax of $ . If a corporations tax return shows taxable income of $110,080 for Year 2 and a tax rate of 40%, how much will appear on the December 31, Year 2, balance sheet for Income taxes payable if the company has made estimated tax payments of $35,240 for Y ear 2? $ .

(f)

(g) An increase in the Deferred Tax Liability account on the balance sheet is recorded by a to the Income Tax Expense account. An income statement that reports current tax expense of $86,710 and deferred tax benefit of $29,250 will report total income tax expense of $ . that a portion of a deferred tax asset

(h)

(i)

A valuation account is needed whenever it is judged to be

(j)

realized. If the tax return shows total taxes due for the period of $79,740 but the income statement shows total income tax expense of $57,680, the difference of $23,570 is referred to as deferred tax ($78,670 divided by 40%) [($110,080 x 40%) $35,240] ($86,710 $29,250) . = = = $196,675 $8,792 $57,460

(b) (f) (h)

6. The pretax financial income (or loss) figures for Synergetics Company are as follows.
2008 2009 2010 2011 $176,400 259,100 81,900 (176,400 )

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2012 2013 2014 (386,700 ) 134,500 106,400

Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 40% tax rate for 2008 and 2009 and a 35% tax rate for the remaining years. Prepare the journal entries for the years 2010 to 2014 to record income tax expense and the effects of the net operating loss carrybacks, and carryforwards, assuming Synergetics Company uses the carryback provision. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.) (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation

Debit 2010

Credit

2011

2012

(To record carryback.)

(To record carryforward.) 2013

2014

2010 2011 2012

2013 2014

Income Taxes Payable Income Tax Refund Receivable Benefit Due to Loss Carryback (Income Tax Expense) Benefit Due to Loss Carryforward (Income Tax Expense) Deferred Tax Asset Deferred Tax Asset

= = = = = =

($81,900 x 35%) ($176,400 x 40%) ($81,900 x 35%) [($386,700 $81,900)x35%] ($134,500x35%) ($106,400 x 35%)

=$28,665 =$70,560 =$28,665 =$106,680 =$47,075 =$37,240

7.
The following information has been obtained for the Gocker Corporation. 1. 2. 3. Prior to 2012, taxable income and pretax financial income were identical. Pretax financial income is $1,704,400 in 2012 and $1,427,500 in 2013. On January 1, 2012, equipment costing $1,292,000 is purchased. It is to be depreciated on a straightline basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Hint: Use the half-year convention for tax purposes, as discussed in

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4. 5. 6. 7.

Appendix 11A.) Interest of $66,800 was earned on tax-exempt municipal obligations in 2013. Included in 2013 pretax financial income is an extraordinary gain of $202,500, which is fully taxable. The tax rate is 36% for all periods. Taxable income is expected in all future years.

(a) Compute taxable income and income taxes payable for 2013.

Taxable income Income taxes payable Book Depreciation 2012 $161,500 2013 161,500 2014 161,500 2015 161,500 2016 161,500 2017 161,500 2018 161,500 2019 161,500 Totals $1,292,000 Pretax financial income for 2013 Nontaxable interest Excess depreciation ($258,400 $161,500) Taxable income for 2013 Tax rate Income taxes payable for 2013

$ $ Tax Depreciation Difference $129,200* $32,300 258,400 (96,900 ) 258,400 (96,900 ) 258,400 (96,900 ) 258,400 (96,900 ) 129,200* 32,300 0 161,500 0 161,500 $1,292,000 $0 $1,427,500 (66,800 ) (96,900 ) $1,263,800 36 % $454,968

8. Which of the following is false regarding accounting for deferred taxes under IFRS?

Tax effects of certain items are recognized in equity.

The rate used to compute deferred taxes is either the enacted tax rate, or a substantially enacted tax rate (virtually certain).

A deferred tax liability is classified as current or noncurrent based on the classification of the asset or liability to which it relates.

A deferred tax asset is recognized up to the amount that is probable to be realized.

9. With regard to recognition of deferred tax assets, IFRS requires Approach Impairment approach Recognition Recognize an asset up to the amount that is probable to be realized

Affirmative judgment

Recognize an asset up to the amount that is probable to be realized

Impairment approach

Recognize asset in full, reduced by valuation allowance if its more likely than not that all or a portion of the asset wont be realized Recognize asset in full, reduced by valuation allowance if its more likely than not that all or a portion of the asset wont be realized

Affirmative judgment