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Chapter 19: 9Q (page 1093)

Feagler Company’s current income taxes payable related to its taxable income for 2017 is \(460,000. In addition, Feagler’s deferred tax asset decreased \)20,000 during 2017. What is Feagler’s income tax expense for 2017?

Short Answer

Expert verified

An assetis a column in the organization's balance sheet that considers the future benefits of an organization in the form of cash. It is also used in various turnover ratios.

Step by step solution

01

Given the amounts as

Particulars

Amount

Taxable income

$460,000

Deferred tax asset

$20,000

02

Calculation of income tax expense for 2017

Incometaxexpense=Taxableincome+Deferredtaxasset=$460,000+$20,000=$480,000

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Most popular questions from this chapter

The following information is available for Remmers Corporation for 2017. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by \(120,000. This difference will reverse in equal amounts of \)30,000 over the years 2018–2021. 2. Interest received on municipal bonds was \(10,000. 3. Rent collected in advance on January 1, 2017, totaled \)60,000 for a 3-year period. Of this amount, \(40,000 was reported as unearned at December 31, 2017, for book purposes. 4. The tax rates are 40% for 2017 and 35% for 2018 and subsequent years. 5. Income taxes of \)320,000 are due per the tax return for 2017. 6. No deferred taxes existed at the beginning of 2017. Instructions (a) Compute taxable income for 2017. (b) Compute pretax financial income for 2017. (c) Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2017 and 2018. Assume taxable income was $980,000 in 2018. (d) Prepare the income tax expense section of the income statement for 2017, beginning with “Income before income taxes.”

Question: Novotna Inc.’s only temporary difference at the beginning and end of 2016 is caused by a \(3 million deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2017 and 2018. The related deferred tax liability at the beginning of the year is \)1,200,000. In the third quarter of 2016, a new tax rate of 34% is enacted into law and is scheduled to become effective for 2018. Taxable income for 2016 is $5,000,000, and taxable income is expected in all future years.

Instructions

(a) Determine the amount reported as a deferred tax liability at the end of 2016. Indicate proper classification(s).

(b) Prepare the journal entry (if any) necessary to adjust the deferred tax liability when the new tax rate is enacted into law.

(c) Draft the income tax expense portion of the income statement for 2016. Begin with the line “Income before income taxes.” Assume no permanent differences exist.

Where can authoritative IFRS related to the accounting for taxes be found?

Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes. Instructions For each item below, indicate whether it involves: (1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset. (2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability. (3) A permanent difference. Use the appropriate number to indicate your answer for each. (a) ______ The MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets. (b) ______ A landlord collects some rents in advance. Rents received are taxable in the period when they are received. (c) ______ Expenses are incurred in obtaining tax-exempt income. (d) ______ Costs of guarantees and warranties are estimated and accrued for financial reporting purposes. (e) ______ Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes. (f) ______ For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes, but the assets’ lives are shorter for tax purposes. (g) ______ Interest is received on an investment in tax-exempt municipal obligations. (h) ______ Proceeds are received from a life insurance company because of the death of a key officer. (The company carries a policy on key officers.) (i) ______ The tax return reports a deduction for 80% of the dividends received from U.S. corporations. The cost method is used in accounting for the related investments for financial reporting purposes. (j) ______ Estimated losses on pending lawsuits and claims are accrued for books. These losses are tax deductible in the period(s) when the related liabilities are settled. (k) ______ Expenses on stock options are accrued for financial reporting purposes.

Homestake Mining Company is a 120-year-old international gold mining company with substantial gold mining operations and exploration in the United States, Canada, and Australia. At year-end, Homestake reported the following items related to income taxes (thousands of dollars).

Total current taxes

\( 26,349

Total deferred taxes

(39,436)

Total income and mining taxes (the provision for taxes per its income statement)

\) (13,087)

Deferred tax liabilities

\(303,050

Deferred tax assets, net of valuation allowance of \)207,175

95,275

\(207,775


Note 6: The classification of deferred tax assets and liabilities is based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the estimated period of reversal.

Tax loss carry forwards (U.S., Canada, Australia, and Chile)

\)71,151

Tax credit carry forwards

\(12,007

Instructions

  1. What is the significance of Homestake’s disclosure of “Current taxes” of \)26,349 and “Deferred taxes” of \((39,436)?
  2. Explain the concept behind Homestake’s disclosure of gross deferred tax liabilities (future taxable amounts) and gross deferred tax assets (future deductible amounts).
  3. Homestake reported tax loss carry forwards of \)71,151 and tax credit carry forwards of $12,007. How do the carry back and carry forward provisions affect the reporting of deferred tax assets and deferred tax liabilities?
See all solutions

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