Question

N The Year CMLU DELCI JULI um continuing operations before income taxes lor e journal entries to record income taxes payable and deferred income taxes for 2018 Pomure the income statement for Walsh Services beginning with "Income from continentations before income taxes for the year ended December 31, 2018 2021 Problem 4. Millcroft Inc. computed a pretax financial income of $40,000 for the first year of its nations onded December 31, 2017 Analysis of the tax and book basis of its liabilities disclosed $360,000 in named tre e on the books that had been recognized as taxable income in 2017 when the cash was received The med rent is expected to be recognized on the books in the following uttam 2018 ....... $ 90,000 2019 160,000 2020.. 70,000 40.000 $300.000 The acted tax rates for this year and the next four years are as follows: 2017 40% 2018 36% 2019... 339 2020 30% 2021 32% Instructions (1) Prepare a schedule showing the reversal of the temporary difference and the computation of income taxes payable and deferred tax assets or liabilities as of December 31, 2017. (2) Prepare journal entries to record income taxes payable and deferred income taxes (3) Prepare the income statement for Millcroft beginning with "Income from continuing operations before income taxes" for the year ended December 31, 2017. Problem 5. Radford Appliances computed a pretax financial loss of $60,000 for the first year of its operations ended December 31. 2017. Analysis of the tax and book basis of its liabilities disclosed $80.000 in accrued warranty expenses on the books that had not been deductible from taxable income in 2017, but would be deductible in future years when the warranty expenses were paid. The future warranty payments are expected to occur in the following pattern: 2018 S14,000 2019..... 36,000 2020 18.000 2021 12.000 $80,000 The enacted tax rates for this year and the next four years are as follows: 2017. 40% 2018 35% 2019 32% 2020 30% 2021 30% Instructions (1) Prepare a schedule showing the reversal of the temporary difference and the computation of income taxes payable and deferred tax assets or liabilities as of December 31, 2017 (2) Prepare journal entries to record income taxes payable and deferred income taxes. (3) Prepare the income tax expense section of the income statement for Walsh Services for 2017 K19-2

Answer 1

.

Millcroft Inc. Requirement 1 Reversal Years 2018 2019 2020 2021 2017 40000 360000 -90000 -90000 -160000 -160000 70000 -70000 40000 -40000 400000 Taxable financial income Temporary differences: Unearned rent revenue Rent revenue earned Taxable income (loss) Loss carryback: 2018 carryback 2019 carryback 2020 carryback Net taxable (deductible) amount Enacted tax rate 90000 160000 -90000 - 160000 -70000 80000 40% 70000 36% 0 30% 30% -40000 32% Particulars Income taxes payable a/c Dr. To Current deferred tax asset To Non Current deferred tax asset Debit in $ Credit in $ 160000 36000 64000 (40% x $400,000) =160000; (40% x $90,000) = 36000; (40% x $160,000) = 64000 Requirement 2 2017 Journal Enteries Particulars Income Tax Expense-Current a/c Dr. To Income Taxes Payable Debit in $ Credit in $ 160000 160000 Deferred Tax Asset--Current a/c Dr. Deferred Tax Asset--Noncurrent a/c Dr. To Income Tax Benefit--Deferred 36000 92000 128000 Requirement 3 2017 Income Statement Presentation: 40000 Income from continuing operations before income taxes. Less income taxes: Current provision 160000 Deferred benefit.. - 128000 Income from continuing operations 32000 8000

Radford Appliances Requirement 1 Reversal Years 2019 2018 2020 2021 2017 -60000 80000 -14000 -14000 36000 - 36000 -18000 -18000 12000 - 12000 20000 Taxable financial income Temporary differences: Estimated warranty payment in future years Deductible amount - warranty payments Taxable income (loss) Loss carryback: 2018 carryback 2019 carryback Net taxable (deductible) amount Enacted tax rate 14000 - 14000 -6000 0 35% 6000 -30000 32% -18000 30% 12000 30% 40% Particulars Income taxes payable a/c Dr. To Current deferred tax asset To Non Current deferred tax asset (40% x $20,000) = 8000; (40% x $14,000) = 5600; (40% x $6,000) = 2400 Debit in $ Credit in $ 8000 5600 2400 Requirement 2 2017 Journal Enteries Particulars Income Tax Expense-Current a/c Dr. To Income Taxes Payable Debit in $ Credit in $ 8000 8000 Deferred Tax Asset--Current a/c Dr. Deferred Tax Asset--Noncurrent a/c Dr. To Income Tax Benefit--Deferred 5600 2400 8000 Requirement 3 2017 Income Statement Presentation: -60000 Loss from continuing operations before income taxes. Less income taxes: Current provision Deferred benefit.. Loss from continuing operations 8000 -8000 -60000