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Chapter 19: Question 4BE (page 1093)

At December 31, 2017, Appaloosa Corporation had a deferred tax liability of \(25,000. At December 31, 2018, the deferred tax liability is \)42,000. The corporation’s 2018 current tax expense is $48,000. What amount should Appaloosa report as total 2018 income tax expense?

Short Answer

Expert verified

Current tax expenseis a term used to indicate theamount of tax an organization needs to payfor thecurrent financial year. It isaddedto the amount ofdeferred tax expenseto determine thetotal income tax expenseof the firm.

Step by step solution

01

Given the amounts as

Particulars

Amount

Deferred tax liability in 2017

$25,000

Deferred tax liability in 2018

$42,000

Current tax expense

$48,000

02

Computation of income tax expense for 2018.

Particulars

Amount

Deferred tax liability as on Dec 31, 2018

$42,000

Less: Deferred tax liability as on Dec 31, 2017

$25,000

Deferred tax expense

$17,000

Add: Current tax expense

$48,000

Income tax expense for 2018

$65,000

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Most popular questions from this chapter

Describe the procedure(s) involved in classifying deferred tax amounts on the statement of financial position under IFRS.

Felicia Rashad Corporation has pretax financial income (or loss) equal to taxable income (or loss) from 2009 through 2017 as follows.Income (Loss) Tax Rate 2009 $ 29,000 30% 2010 40,000 30 2011 17,000 35 2012 48,000 50 2013 (150,000) 40 2014 90,000 40 2015 30,000 40 2016 105,000 40 2017 (60,000) 45Pretax financial income (loss) and taxable income (loss) were the same for all years since Rashad has been in business. Assume the carryback provision is employed for net operating losses. In recording the benefits of a loss carryforward, assume that it is more likely than not that the related benefits will be realized. Instructions (a) What entry(ies) for income taxes should be recorded for 2013? (b) Indicate what the income tax expense portion of the income statement for 2013 should look like. Assume all income (loss) relates to continuing operations. (c) What entry for income taxes should be recorded in 2014? (d) How should the income tax expense section of the income statement for 2014 appear? (e) What entry for income taxes should be recorded in 2017? (f) How should the income tax expense section of the income statement for 2017 appear?

The accounting records of Shinault Inc. show the following data for 2017 (its first year of operations).

1. Life insurance expense on officers was \(9,000.

2. Equipment was acquired in early January for \)300,000. Straight-line depreciation over a 5-year life is used with no salvage value. For tax purposes, Shinault used a 30% rate to calculate depreciation.

3. Interest revenue on State of New York bonds totaled \(4,000.

4. Product warranties were estimated to be \)50,000 in 2017. Actual repair and labor costs related to the warranties in 2017 were \(10,000. The remainder is estimated to be paid evenly in 2018 and 2019.

5. Gross profit on an accrual basis was \)100,000. For tax purposes, \(75,000 was recorded on the installment-sales method.

6. Fines incurred for pollution violations were \)4,200.

7. Pretax financial income was $750,000. The tax rate is 30%.

Instructions (a) Prepare a schedule starting with pretax financial income in 2017 and ending with taxable income in 2017. (b) Prepare the journal entry for 2017 to record income taxes payable, income tax expense, and deferred income taxes.

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

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.
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