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Chapter 19: 6Q (page 1093)

Roth Inc. has a deferred tax liability of \(68,000 at the beginning of 2018. At the end of 2018, it reports accounts receivable on the books at \)90,000 and the tax basis at zero (its only temporary difference). If the enacted tax rate is 34% for all periods, and income taxes payable for the period is $230,000, determine the amount of total income tax expense to report for 2018.

Short Answer

Expert verified

Accounts receivables is an item that is listed on the assets side of the organization's balance sheet. It depicts the amount owned by the organizations from its debtors.

Step by step solution

01

Computation of deferred tax asset/liability at the end of 2018

Particulars

Amount

Book basis of asset

$90,000

Multiply: Tax rate

34%

Deferred tax liability at the end

$30,600

02

Calculation of total income tax expense for the year 2018.

Particulars

Amount

Deferred tax liability at the end

$30,600

Add: Deferred tax liability at the beginning

$68,000

Deferred tax benefit

($37,400)

Add: Income tax payable

$230,000

Income tax expense

$192,600

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Most popular questions from this chapter

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.

Andy McDowell Co. establishes a \(100 million liability at the end of 2017 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2018. Also, at the end of 2017, the company has \)50 million of temporary differences due to excess depreciation for tax purposes, \(7 million of which will reverse in 2018. The enacted tax rate for all years is 40%, and the company pays taxes of \)64 million on \(160 million of taxable income in 2017. McDowell expects to have taxable income in 2018. Instructions (a) Determine the deferred taxes to be reported at the end of 2017. (b) Indicate how the deferred taxes computed in (a) are to be reported on the balance sheet. (c) Assuming that the only deferred tax account at the beginning of 2017 was a deferred tax liability of \)10,000,000, draft the income tax expense portion of the income statement for 2017, beginning with the line “Income before income taxes.” (Hint: You must first compute (1) the amount of temporary difference underlying the beginning $10,000,000 deferred tax liability, then (2) the amount of temporary differences originating or reversing during the year, and then (3) the amount of pretax financial income.)

: Describe the current convergence efforts of the FASB and IASB in accounting for taxes.

Use the information for Rode Inc. given in BE19-13. Assume that it is more likely than not that the entire net operating loss carryforward will not be realized in future years. Prepare all the journal entries necessary at the end of 2017.

Button Company has the following two temporary differences between its income tax expense and income taxes payable2017 2018 2019 Pretax financial income \(840,000 \)910,000 \(945,000 Excess depreciation expense on tax return (30,000) (40,000) (10,000) Excess warranty expense in financial income 20,000 10,000 8,000 Taxable income \)830,000 \(880,000 \)943,000 The income tax rate for all years is 40%. Instructions (a) Assuming there were no temporary differences prior to 2017, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, 2018, and 2019. (b) Indicate how deferred taxes will be reported on the 2019 balance sheet. Button’s product warranty is for 12 months. (c) Prepare the income tax expense section of the income statement for 2019, beginning with the line “Pretax financial income.”
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