Intermediate Accounting HW

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This is homework exercises in my Intermediate Accounting II class

In chapter 16 (Accounting For Income Taxes) from the text book : Spicepand, Sepe, Nelson, Thomas: Intermediate Accounting: 8th Edition, McGraw-Hill Irwin

BE: 16-5 , Ex: 3, 4, 5, 10, 13, 14, 20, 21, 22 Prob: 1, 6

Note: Most of it is prepareing journal entries, some questions are not but just need SHORT answers,

(don't do a lot of datiles just make it simple with simple steps )

Gonna send the lecture PowerPoint after you accept my question

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972 SECTION 3 Financial Instruments and Liabilities A company reports pretax accounting income of $10 million, but because of a single temporary difference, tax- able income is $12 million. No temporary differences existed at the beginning of the year, and the tax rate is BE 16-3 Temporary difference LO16-2 40%. prepare the appropriate journal entry to record income taxes. In 2016, Ryan Management collected rent revenue for 2017 tenant occupancy. For financial reporting, the rent is BE 16-12 BE 16-4 Temporary difference; income tax payable given LO16-2 recorded as deferred revenue and then recognized as income in the period tenants occupy rental property, but fine income tax reporting it is taxed when collected. The deferred portion of the rent collected in 2016 was $50 min lion. Taxable income is $180 million. No temporary differences existed at the beginning of the year, and the man rate is 40%. Prepare the appropriate journal entry to record income taxes. Net operating loss carryforward 2016-7 BE 16-13 Refer to the situation described in BE 16-4. Suppose the deferred portion of the rent collected was $40 millions the end of 2017. Taxable income is $200 million. Prepare the appropriate journal entry to record income taxes. Net operating loss carryback L016-7 BE 16-5 Temporary difference; income tax payable given O LO16-2 BE 16-14 Tax uncertainty L016-9 BE 16-15 BE 16-6 Valuation allowance LO16-2, L016-3 At the end of the year, the deferred tax asset account had a balance of $12 million attributable to a cumulative temporary difference of $30 million in a liability for estimated expenses. Taxable income is $35 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%. Prepare the journal entry's ) to record income taxes assuming it is more likely than not that one-fourth of the deferred tax asset will not ulti- mately be realized. Intraperiod tax allocation L016-10 BE 16-7 Valuation allowance LO16-2, LO16-3 VeriFone Systems is a provider of electronic card payment terminals, peripherals, network products, and soft- $513 million. The company also reported valuation allowances totaling about $418 million. What would moti- Exercis vate VeriFone to have a valuation allowance almost equal to its deferred tax assets? Real World Financials BE 162 erred tax liability this year. Net Operating loss carryforward tax rate was 40%. This year, om 40% to 35% beginning next year. Calculate the amount by the net operating loss. 2016-7 reporting During its first year of operations, Nile.com reported a net operating loss of $15 million for financial and tax purposes. The enacted tax rate is 40%. Prepare the journal entry to recognize the income tax benefit of BE 1673 Net operating loss carryback 2016-7 able income last year and the previous year, respectively, was $20 million and $15 million. The enacted tax rate AirParts Corporation reported a net operating loss of $25 million for financial reporting and tax purposes. Tax- each year is 40%. Prepare the journal entry to recognize the income tax benefit of the net operating loss. AirParts elects the carryback option. BE 16–14 Tax uncertainty 2016-9 First Bank has some question as to the tax-free nature of $5 million of its municipal bond portfolio. This amount is excluded from First Bank's taxable income of $55 million. Management has determined that there is a 65% chance that the tax-free status of this interest can't withstand scrutiny of taxing authorities. Assuming a 40% tax rate, what amount of income tax expense should the bank report? BE 16-15 Intraperiod tax allocation . 2016-10 Southeast Airlines had pretax earnings of $65 million, including a gain on disposal of a discontinued operation of $10 million. The company's tax rate is 40%. What is the amount of income tax expense that Southeast should report in its income statement? How should the gain on disposal of a discontinued operation be reported? Exercises Grau connect ACCOUNTING E 16-1 An alternate exercise and problem set is available in the Connect library. Temporary difference; taxable income given • L016-1 Alvis Corporation reports pretax accounting income of $400,000, but due to a single temporary difference, tax- able income is only $250,000. At the beginning of the year, no temporary differences existed. Required: 1. Assuming a tax rate of 35%, what will be Alvis's net income? 2. What will Alvis report in the balance sheet pertaining to income taxes? E 16-2 Determine taxable income; determine prior year deferred tax amount • L016-1 On January 1, 2013, Ameen Company purchased a building for $36 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2015, the book value of the building was $30 million and its tax basis was $20 million. At December 31, 2016, the book value of the building was $28 million and its tax basis was $13 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2016 was $45 million. Required: 1. Prepare the appropriate journal entry to record Ameen's 2016 income taxes. Assume an income tax rate of 40%. 2. What is Ameen's 2016 net income? E Taxable income given; calculate Ayres Services acquired an asset for $80 million in 2016. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2016, 2017, 2018, and 2019 are as follows: deferred tax liability L016-1 ($ in millions) 2016 2017 2018 2019 $330 $350 $400 $365 20 20 20 Pretax accounting income Depreciation on the income statement Depreciation on the tax return Taxable income (25) $325 20 (33) $337 (15) $370 (7) $413 974 SECTION 3 Financial Instruments and Liabilities E 16-4 Temporary difference; income tax payable given O LO16-2 Required: For December 31 of each year, determine (a) the temporary book-tax difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account. In 2016, DFS Medical Supply collected rent revenue for 2017 tenant occupancy. For income tax reporting, the rent is taxed when collected. For financial statement reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy the rental property. The deferred portion of the rent collected in 2016 amounted to $300,000 at December 31, 2016. DFS had no temporary differences at the beginning of the year. Required: Assuming an income tax rate of 40% and 2016 income tax payable of $950,000, prepare the journal entry to record income taxes for 2016. E 16-5 Temporary difference; future deductible amounts; taxable income given LO16-2 Lance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when the cost is incurred. At December 31, 2016, Lance has a warranty liability of $1 million and taxable income of $75 million. At December 31, 2015, Lance reported a deferred tax asset of $435,000 related to this difference in reporting warranties, its only tempo rary difference. The enacted tax rate is 40% each year. Required: Prepare the appropriate journal entry to record Lance's income tax provision for 2016. Listed below are 10 causes of temporary differences. For each temporary difference, indicate (by letter) whether it will create future deductible amounts (D) or future taxable amounts (T). E 16-6 Identify future taxable amounts and future deductible amounts LO16-1. L016-2 Temporary Difference 1. Accrual of loss contingency, tax-deductible when paid. 2. Newspaper subscriptions; taxable when received, recognized for financial reporting E 18-8 Calculate income situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by temporary differences: ($ in thousands) Situation amounts under various circumstances 2016-1, LO16-2 fax 1 2 3 4 Sed $215 $85 15 $195 20 15 $260 20 30 15 Taxable income Future deductible amounts Future taxable amounts Balance(s) at beginning of the year: Deferred tax asset Deferred tax liability 4 2 No 2 The enacted tax rate is 40%. Required: For each situation, determine the: a. Income tax payable currently. b. Deferred tax asset-balance. c. Deferred tax asset-change (dr) cr. d. Deferred tax liability-balance. e. Deferred tax liability-change (dr) cr. f. Income tax expense. E 16-9 Determine taxable income • L016-1, LO16-2 Eight independent situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by: ($ in millions) Temporary Differences Reported First on: The Income Statement The Tax Return Revenue Expense Revenue Expense $20 $20 1. 2. 3. 4. $20 $20 15 15 5. 6. 7. 8. 20 20 20 20 15 10 15 5 10 Required: For each situation, determine taxable income assuming pretax accounting income is $100 million. At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $30 million attributable to a temporary book-tax difference of $75 million in a liability for estimated expenses. At the end of 2016, the temporary difference is $70 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2016 is $180 million and the tax rate is 40%. E 16-10 Deferred tax asset; taxable income given; valuation allowance LO16-3 Required: 1. Prepare the journal entry(s) to record Payne's income taxes for 2016, assuming it is more likely than not that the deferred tax asset will be realized. 2. Prepare the journal entry(s) to record Payne's income taxes for 2016, assuming it is more likely than not that one-fourth of the deferred tax asset will ultimately be realized. E 16-11 Deferred tax asset; income tax payable given; previous balance in valuation allowance (This is a variation of Exercise 16–10, modified to assume a previous balance in the valuation allowance.) At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $30 million attributable to a tempo- rary book-tax difference of $75 million in a liability for estimated expenses. At the end of 2016, the temporary difference is $70 million. Payne has no other temporary differences. Taxable income for 2016 is $180 million and the tax rate is 40%. Payne has a valuation allowance of $10 million for the deferred tax asset at the beginning of 2016. L016-3 SEC ON 3 Financial Instruments and Liabilities Required: 1. Prepare the journal entry(s) to record Payne's income taxes for 2016, assuming it is more likely than not that the deferred tax asset will be realized. 2. Prepare the journal entry(s) to record Payne's income taxes for 2016, assuming it is more likely than not that one-fourth of the deferred tax asset will ultimately be realized. When a company records a deferred tax asset, it may need to also report a valuation allowance if it is “more likely than not" that some portion or all of the deferred tax asset will not be realized. The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. E 16-12 FASB codification research; valuation allowance LO16-3 CODE Required: 1. Obtain the relevant authoritative literature on disclosure requirements pertaining to how a firm should deter- mine whether a valuation allowance for deferred tax assets is needed using the FASB's Codification Research System at the FASB website (www.fasb.org). What is the specific citation that describes the guidelines for determining the disclosure requirements? 2. What are the guidelines? 100 E 16-13 Multiple differences; calculate taxable income LO16-1, LO16-4 Southern Atlantic Distributors began operations in January 2016 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial report- ing purposes. For tax purposes, the deduction is 50% of cost in 2016, 30% in 2017, and 20% in 2018. Pretax accounting income for 2016 was $300,000, which includes interest revenue of $40,000 from municipal bonds. The enacted tax rate is 40%. Required: Assuming no differences between accounting income and taxable income other than those described above: 1. Prepare the journal entry to record income taxes in 2016. 2. What is Southern Atlantic's 2016 net income? E 16-14 Multiple differences LO16-4, LO16-6 For the year ended December 31, 2016, Fidelity Engineering reported pretax accounting income of $977,000. Selected information for 2016 from Fidelity's records follows: Interest income on municipal bonds $32,000 Depreciation claimed on the 2016 tax return in excess of depreciation on the income statement 55,000 Carrying amount of depreciable assets in excess of their tax basis at year-end 85,000 Warranty expense reported on the income statement 26,000 Actual warranty expenditures in 2016 16,000 Fidelity's income tax rate is 40%. At January 1, 2016, Fidelity's records indicated balances of zero and $12,000 in its deferred tax asset and deferred tax liability accounts, respectively. Required: 1. Determine the amounts necessary to record income taxes for 2016 and prepare the appropriate journal entry. 2. What is Fidelity's 2016 net income? E 16-15 Multiple tax rates LO16-2, L016-5 Allmond Corporation, organized on January 3, 2016, had pretax accounting income of $14 million and taxable income of $20 million for the year ended December 31, 2016. The 2016 tax rate is 35%. The only difference between accounting income and taxable income is estimated product warranty costs. Expected payments and scheduled tax rates (based on recent tax legislation) are as follows: 2017 2018 2019 2020 $2 million 1 million 1 million 2 million 30% 30% 30% 25% Required: 1. Determine the amounts necessary to record Allmond's income taxes for 2016 and prepare the appropriate journal entry. 2. What is Allmond's 2016 net income? E 16-16 Change in tax ates; calculate axable income L016-1, LO16-5 Arnold Industries has pretax accounting income of $33 million for the year ended December 31, 2016. The tax rate is 40%. The only difference between accounting income and taxable income relates to an operating lease in which Arnold is the lessee. The inception of the lease was December 28, 2016. An $8 million advance rent pay- ment at the inception of the lease is tax-deductible in 2016 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term.
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Explanation & Answer

Here you go......

Brief Exercise 16-5
Refer to the situation described in BE 16-4. Suppose the deferred portion of the rent
collected was $40 million at the end of 2017. Taxable income is $200 million. Prepare the
appropriate journal entry to record income taxes.
Prepare journal entries to record income taxes:
1.
Debit Credit
Date Accounts title and explanation

Post Ref.

2017 Income tax expense( to balance) (E–)
Deferred tax asset (A–)
Income tax payable(L+)
(To record the payment of income tax.)

($)
84

($)
4
80

Exercise 3
Ayres Services acquired an asset for $80 million in 2016. The asset is depreciated for
financial reporting purposes over four years on a straight-line basis (no residual value). For
tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 40%.
Amounts for pretax accounting income, depreciation, and taxable income in 2016, 2017,
2018, and 2019 are as follows:

Required:
For December 31 of each year, determine (a) the temporary book-tax difference for the
depreciable asset and (b) the balance to be reported in the deferred tax liability account.
(a) Determine the temporary book-tax difference for the depreciable asset as shown below:
The difference between the books and tax is a result of different rates of depreciation
adopted for books and tax purposes.

The temporary difference is the difference between the amount of depreciation calculated
for books and tax.

Therefore, the temporary book-tax difference for the depreciable asset for 2016 is 5
million, for 2017 is 18 million, for 2018 is 13 million, and for 2019 is 0 million.
(b) Determine the balance to be reported in the differed-tax liability account as
shown below:
If the income as per accounting books is lesser than the income as per tax then the
amount of tax on the difference is the differed-tax liability.
It is calculated and shown in the table above
On the basis of calculation in the above table the differed tax liability is for the years
2018 and 2019.
The differed tax liability for 2018 is 2 million and for 2019 is 5.2 million.

Exercise 4
In 2016, DFS Medical Supply collected rent revenue for 2017 tenant occupancy. For
income tax reporting, the rent is taxed when collected. For financial statement reporting,
the rent is recorded as deferred revenue and then recognized as income in the period
tenants occupy the rental property. The deferred portion of the rent collected in 2016
amounted to $300,000 at December 31, 2016. DFS had no temporary differences at the
beginning of the year.
Required:

Assuming an income tax rate of 40% and 2016 income tax payable of $950,000, prepare the
journal entry to record income taxes for 2016.
Prepare journal entry to record income taxes provision for 2016.
Journal Entry:
Post Debit

Credit

Date Account Title and Explanation
Ref. ($)
($)
2016 Income Tax Expense (E–) (balancing amount)
830,000
Deferred Tax Asset (A+)
120,000
Income Tax Payable (L+)
950,000
(To record the income tax provision for 2016)

Exercise 5
Lance Lawn Services reports warranty expense by estimating the amount that eventually will be
paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when the
cost is incurred. At December 31, 2016, Lance has a warranty liability of $1 million and taxable
income of $75 million. At December 31, 2015, Lance reported a deferred tax asset of $435,000
related to this difference in reporting warranties, its only temporary d...


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