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Chapter 19: Q10IFRS (page 1114)

At December 31, 2017, Cascade Company had a net deferred tax liability of \(450,000. An explanation of the items that compose this balance is as follows.

Temporary Differences in Deferred Taxes

Resulting Balances

1. Excess of tax depreciation over book depreciation.

\)200,000

2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2018. The loss will be deducted on the tax return when paid.

\( (50,000)

3. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment.

\)300,000

In analyzing the temporary differences, you find that \(30,000 of the depreciation temporary difference will reverse in 2018, and \)120,000 of the temporary difference due to the installment sale will reverse in 2018. The tax rate for all years is 40%.

Instructions

Indicate the manner in which deferred taxes should be presented on Cascade Company’s December 31, 2017, statement of financial position.

Short Answer

Expert verified

Deferred tax liability of $450,000, will be reported under non-current liability on balance sheet.

Step by step solution

01

Meaning of Depreciation

Depreciation is the accounting practice of assigning the cost of tangible assets to expenses systematically and sensibly to the periods in which the asset is expected to be used.

02

Indicating deferred tax in the financial statement.

Non-current liabilities

Deferred tax liability

$450,000

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Most popular questions from this chapter

Taxable income and pretax financial income would be identical for Huber Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared. Taxable Income 2016 2017 2018 Excess of revenues over expenses (excluding two temporary differences) \(160,000 \)210,000 \(90,000 Installment gross profi t collected 8,000 8,000 8,000 Expenditures for warranties (5,000) (5,000) (5,000) Taxable income \)163,000 \(213,000 \)93,000 Pretax Financial Income Excess of revenues over expenses (excluding two temporary differences) \(160,000 \)210,000 \(90,000 Installment gross profi t recognized 24,000 –0– –0– Estimated cost of warranties (15,000) –0– –0– Income before taxes \)169,000 \(210,000 \)90,000. The tax rates in effect are 2016, 40%; 2017 and 2018, 45%. All tax rates were enacted into law on January 1, 2016. No deferred income taxes existed at the beginning of 2016. Taxable income is expected in all future years. Instructions Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016, 2017, and 2018.

Oxford Corporation began operations in 2017 and reported pretax financial income of \(225,000 for the year. Oxford’s tax depreciation exceeded its book depreciation by \)40,000. Oxford’s tax rate for 2017 and years thereafter is 30%. In its December 31, 2017, balance sheet, what amount of deferred tax liability should be reported?

The following facts relate to Duncan Corporation. 1. Deferred tax liability, January 1, 2017, \(60,000. 2. Deferred tax asset, January 1, 2017, \)20,000. 3. Taxable income for 2017, \(105,000. 4. Cumulative temporary difference at December 31, 2017, giving rise to future taxable amounts, \)230,000. 5. Cumulative temporary difference at December 31, 2017, giving rise to future deductible amounts, $95,000. 6. Tax rate for all years, 40%. No permanent differences exist. 7. The company is expected to operate profitably in the future. Instructions (a) Compute the amount of pretax financial income 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.” (d) Compute the effective tax rate for 2017.

Which of the following statements is correct with regard to IFRS and GAAP? (a) Under GAAP, all potential liabilities related to uncertain tax positions must be recognized. (b) The tax effects related to certain items are reported in equity under GAAP; under IFRS, the tax effects are charged or credited to income. (c) IFRS uses an affirmative judgment approach for deferred tax assets, whereas GAAP uses an impairment approach for deferred tax assets. (d) IFRS classifies deferred taxes based on the classification of the asset or liability to which it relates.

Stephens Company has a deductible temporary difference of \(2,000,000 at the end of its first year of operations. Its tax rate is 40 percent. Stephens has \)1,800,000 of income taxes payable. After a careful review of all available evidence, Stephens determines that it is probable that it will not realize \(200,000 of this deferred tax asset. On Stephens Company’s statement of financial position at the end of its first year of operations, what is the amount of deferred tax asset?

(a) \)2,000,000. (c) \(800,000.

(b) \)1,800,000. (d) $600,000.
See all solutions

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