Chapter 19: 4Q (page 1092)
Differentiate between an originating temporary difference and a reversing difference.
Income tax is a term used when the government of a country imposes a tax on the total income earned by an individual or a firm so that it can benefit the whole economy.
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What is the difference between a future taxable amount and a future deductible amount? When is it appropriate to record a valuation account for a deferred tax asset?
Part A: This year, Gumowski Company has each of the following items in its income statement.
1. Gross profits on installment sales.
2. Revenues on long-term construction contracts.
3. Estimated costs of product warranty contracts.
4. Premiums on officers’ life insurance policies with Gumowski as beneficiary.
Instructions
(b) Specify when deferred income taxes would need to be recognized for each of the items above, and indicate the rationale for such recognition.
Conlin Corporation had the following tax information. Year Taxable Income Tax Rate Taxes Paid 2015 \(300,000 35% \)105,000 2016 325,000 30 97,500 2017 400,000 30 120,000 In 2018, Conlin suffered a net operating loss of $480,000, which it elected to carry back. The 2018 enacted tax rate is 29%. Prepare Conlin’s entry to record the effect of the loss carryback.
Bandung Corporation began 2017 with a \(92,000 balance in the Deferred Tax Liability account. At the end of 2017, the related cumulative temporary difference amounts to \)350,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2017 is \(525,000, the tax rate for all years is 40%, and taxable income for 2017 is \)405,000. Instructions (a) Compute income taxes payable for 2017. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (c) Prepare the income tax expense section of the income statement for 2017 beginning with the line “Income before income taxes.”
Under IFRS: (a) “probable” is defined as a level of likelihood of at least slightly more than 60%. (b) a company should reduce a deferred tax asset when it is likely that some or all of it will not be realized by using a valuation allowance. (c) a company considers only positive evidence when determining whether to recognize a deferred tax asset. (d) deferred tax assets must be evaluated at the end of each accounting period.
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