Intermediate accounting by robles empleo 1 answers chapter 5 vol 2 2009

Chapter - Income Taxes CHAPTER INCOME TAXES PROBLEMS 5-1 5-2 a b c d e f g Nontaxable Nondeductible Nondeductible Temporary difference Temporary difference Temporary difference Temporary difference – – – – Future Future Future Future taxable amount taxable amount deductible amount deductible amount Pretax financial income P11,000,00 640,000 Add Nondeductible expenses (b + c) 600,000 + 40,000 Less Nontaxable income (a) Financial income subject to tax (3,000,000) P 8,640,000 1,150,000 Add Future deductible amounts (f + g) 750,000 + 400,000 Less Future taxable amounts (d + e) 1,500,000 + 1,000,000 Taxable income Income Tax Expense – Current Income Tax Payable 30% x 7,290,000 (2,500,000) P7,290,000 2,187,000 Income Tax Expense – Deferred Deferred Tax Liability 30% x 2,500,000 750,000 Deferred Tax Asset Income Tax Expense – Deferred 30% x 1,150,000 345,000 2,187,000 750,000 345,000 or one compound entry may be made as follows: Income Tax Expense – Current Income Tax Expense – Deferred Deferred Tax Asset Income Tax Payable Deferred Tax Liability (Luzon Corporation) (a) Pretax financial income Future taxable amount Taxable income Income tax payable: 30% x 1,200,000 P360,000 2,187,000 405,000 345,000 2,187,000 750,000 5-3 (b) Income Tax Expense – Current Income Tax Expense – Deferred 51 P3,000,000 (1,800,000) P1,200,000 360,000 540,000 Chapter - Income Taxes Income Tax Payable Deferred Tax Liability 30% x 1,200,000 = 360,000 30% x 1,800,000 = 540,000 360,000 540,000 5-4 (Visayas Corporation) (a) Pre tax financial income Future deductible amount 1,550,000 Taxable income Income tax payable: 30% x 3,550,000 (b) 465,000 5-5 Income Tax Expense-Current Deferred Tax Asset Income Tax Payable Income Tax Benefit-Deferred P2,000,000 P3,550,000 P1,065,000 1,065,000 465,000 1,065,000 (Mindanao Corporation) Income Tax Expense – Current 1,560,000 Deferred Tax Asset 600,000 Deferred Tax Liability 185,000 Income Tax Expense – Deferred (Benefit) 415,000 Income Tax Payable 1,560,000 30% x 5,200,000 = 1,560,000 30% x 2,000,000 = 600,000 (30% x 500,000) + (35% x 100,000) = 185,000 5-6 (Samar, Inc.) Income Tax Expense – Current (30% x 2,000,000) Income Tax Expense – Deferred (180,000 – 159,000) (21,000) Income Tax Expense – Total 579,000 Income Tax Payable (see above) 600,000 Deferred Tax Asset: 30% x (360,000 + 240,000) 180,000 Deferred Tax Liability: 30% x 530,000 P 600,000 P P P P 159,000 5-7 (Bohol Company) Taxable income P11,998,000 Future deductible amount: Book depreciation in excess of tax depreciation (430,000) Nontaxable income: Proceeds from life insurance policy upon death of officer 1,250,000 Pretax financial income P12,818,000 5-8 (Wall Services) (a) Schedule of reversal of the temporary differences 2010 140,000 x 32% P 44,800 52 Chapter - Income Taxes 400,000 ( 140,000) 528,000 240,000 (b) 2011 320,000 x 34% 2012 240,000 x 36% Total 108,800 86,400 P240,000 Pretax financial income Add nondeductible expenses P2,200,000 Less nontaxable revenues Financial income subject to tax Future taxable amounts Taxable income Tax rate Income tax payable P2,460,000 ( 700,000) P1,760,000 x 30 % P Deferred tax liability (see above) P Income Tax Expense – Current Income Tax Payable 528,000 Income Tax Expense – Deferred Deferred Tax Liability 240,000 528,000 240,000 (c) Income from continuing operations before income tax P2,200,000 Income tax expense: Current P528,000 Deferred 240,000 768,000 Net income P1,432,000 5-9 (Daniel Company) (a) 2009 2010 2011 2012 Straight Line 500,000 500,000 500,000 500,000 12/31/2009 12/31/2010 12/31/2011 12/31/2012 Taxable income Future taxable amount Additional taxable amount (reversal) Pretax accounting income (b) SYD 800,000 600,000 400,000 200,000 Carrying Amount 1,500,000 1,000,000 500,000 2009 800,000 300,000 2010 890,000 100,000 1,100,000 990,000 Difference (300,000) (100,000) 100,000 300,000 Tax Base 1,200,000 600,000 200,000 Difference 300,000 400,000 (300,000) 2011 1,200,000 2012 1,500,000 ( 100,000) 1,100,000 (300,000) 1,200,000 Deferred Tax Liability (Asset) at the end of each year is as follows: 2009 300,000 x 30% P 90,000 2010 400,000 x 30% 120,000 2011 300,000 x 30% ( 90,000) 53 Chapter - Income Taxes 2012 (c) 0 Journal entries to record current income tax: 2009 2010 Income Tax Expense-Current 240,000 267,000 Income Tax Payable 240,000 267,000 (30% x 800,000) (30% x 890,000) 2011 2012 Income Tax Expense-Current 360,000 450,000 Income Tax Payable 360,000 450,000 (30% x 1,200,000) (30% x 1,500,000) Journal entries to record deferred income tax: December 31, 2009: Income Tax Expense-Deferred Deferred Tax Liability 90,000 December 31, 2010: Income Tax Expense – Deferred Deferred Tax Liability 30,000 30,000 December 31, 2011: Deferred Tax Liability Income Tax Expense-Deferred (Benefit) 30,000 December 31, 2012: Deferred Tax Liability Income Tax Expense-Deferred (Benefit) 90,000 (d) Income tax expense: Current Deferred (Benefit) Total income tax expense (e) Income before income tax 90,000 30,000 90,000 2009 2010 2011 2012 P 240,000 90,00 P 330,000 P 267,000 30,00 P 297,000 P 360,000 ( 30,00 0) P 330,000 P 450,000 (90,00 0) P 360,000 2009 P1,100,000 Less income tax 54 2010 P 990,000 2011 P1,100,00 2012 P1,200,00 Chapter - Income Taxes expense (see above) Net income 330,00 P 770,000 297,00 P 693,000 330,00 P 770,000 360,00 P 840,000 5-10 (Jude Company) (a) Future taxable amount Carrying amount of inventories > Tax Base 100,000 Carrying amount of building & equipment > Tax Base 1,800,000 P 1,900,000 Future Deductible Amount Carrying amount of accounts receivable < Tax Base P200,000 Carrying amount of warranty > Tax Base 800,000 Carrying amount of unearned rent > Tax Base 500,000 P 1,500,000 (b) Income Tax Payable P1,500,000 Deferred Tax Assets (1,500,000 x 30%) 450,000 Deferred Tax Liability (1,900,000 x 30%) 570,000 (c) Income Tax Expense-Current Income Tax Payable Income Tax Expense-Deferred Deferred Tax Asset 450,000 – 525,000 Deferred Tax Liability Income Tax Benefit-Deferred 830,000 1,400,000 – 570,000 MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5 MC6 MC7 MC8 C C C D C D D D MC9 MC10 MC11 MC12 MC13 MC14 MC15 D C C C D B B Problems MC16 MC17 MC18 B B B 1,800,000 x 35% = 630,000 Excess of Book Value > Tax Basis of Equipment 2,000,000 x 30% + (1,000,000 x 35%) = 950,000 55 P P P 1,500,000 1,500,000 75,000 75,000 830,000 Chapter - Income Taxes MC19 MC20 MC21 D C B MC22 MC23 MC24 MC25 MC26 MC27 MC28 C B D C D C D MC29 MC30 C B MC31 MC32 MC33 MC34 B D C D MC35 MC36 MC37 MC38 MC39 MC40 D C C D D B MC41 A MC42 A 10,000,000 x 30% = 3,000,000 (8,000,000 – 4,000,000) x 30% = 1,200,000 [(700,000 x 30%) + (1,400,000 x 35%)] – [(500,000 x 30%) + (1,000,000 x 35%)] = 700,000 – 500,000 = 200,000 (all non-current) 1,200,000 – 750,000 = 450,000; 450,000 x 35% = 157,500 1,500,000 x 30% = 450,000 6,000,000 x 30% = 1,800,000 9,000,000 x 30% = 2,700,000 42,000 / 30% = 140,000; 600,000 + 140,000 = 740,000 150,000 x 30% = 45,000 5,000,000 – 900,000 + 1,200,000 + 200,000 = 5,500,000; 5,500,000 x 30% = 1,650,000 200,000 – 40,000 = 160,000; 160,000 x 30% = 48,000 150,000 x 35% = 52,500; 150,000 x 35% = 52,500; 150,000 x 30% = 45,000 52,500 + 52,500 + 45,000 = 150,000 95,000 x 38% = 36,100 6,500,000 x 30% = 1,950,000 – 900,000 = 1,050,000 (2,600,000 – 1,400,000) x 38% = 456,000 The deferred tax asset cannot be offset against the deferred tax liability because they will not reverse simultaneously (3,000,000 x 30%) – (5,000,000 x 30%) + (4,000,000 x 30%) = 600,000 See computation below See computation below 172,500 / 30% = 575,000; 3,000,000 + 575,000 = 3,575,000 1,800,000 – 80,000 + 60,000 = 1,780,000; 1,780,000 x 30% = 534,000 2,000,000 – 100,000 – 120,000 + 180,000 = 1,960,000; 1,960,000 x 30% = 588,000 5,000,000 – 500,000 + 200,000 – 4,000,000 + 1,800,000 = 2,500,000 2,500,000 x 30% = 750,000 (5,000,000 + 400,000 – 600,000) x 30% = 1,800,000 (see next page for items 36 and 37) Items 36 and 37: Pretax accounting income Future deductible amount (accrued warranty cost) Future taxable amount (accrual basis profit > cash basis profit Operating loss carry-forward (for tax purposes) Income tax expense Increase in deferred tax liability 5,000,000 x 30% Less: increase in deferred tax asset (from accrued warranty cost) = 1,200,000 x 30% (from operating loss carry forward)= 2,800,000 x 30% x 40% Total deferred tax asset Income tax expense 56 P 1,000,000 1,200,000 (5,000,000) P 2,800,000 P 1,500,000 P 360,000 336,000 P P 696,000 804,000 ... income P1,4 32, 000 5- 9 (Daniel Company) (a) 20 09 2 010 2 011 2 0 12 Straight Line 50 0,000 50 0,000 50 0,000 50 0,000 12 / 31/ 20 09 12 / 31/ 2 010 12 / 31/ 2 011 12 / 31/ 2 0 12 Taxable income Future taxable amount Additional... 55 P P P 1, 50 0,000 1, 50 0,000 75, 000 75, 000 830,000 Chapter - Income Taxes MC19 MC20 MC 21 D C B MC 22 MC23 MC24 MC 25 MC26 MC27 MC28 C B D C D C D MC29 MC30 C B MC 31 MC 32 MC33 MC34 B D C D MC 35. .. 15 0,000 x 35% = 52 ,50 0; 15 0,000 x 30% = 45, 000 52 ,50 0 + 52 ,50 0 + 45, 000 = 15 0,000 95, 000 x 38% = 36 ,10 0 6 ,50 0,000 x 30% = 1, 950 ,000 – 900,000 = 1, 050 ,000 (2, 600,000 – 1, 400,000) x 38% = 456 ,000 The