Question

I years is 40%. ne le manner in which deferred taxes should be presented on Belmont Company's December 31, 2016, balance sheet. E19-10 (L01,2) (Two Temporary Differences, One Rate, Beginning Deferred Taxes, Compute Pretax Financial Income) The following facts relate to Duncan Corporation. 1. Deferred tax liability, January 1, 2017, 560,000. 2. Deferred tax asset, January 1, 2017, $20,000. 3. Taxable income for 2017, S105,000. 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, 995,000 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 E19-11 (L01,2) (One Different

Answer 1

Duncan Corporation Cinula $ 60,000 Tax liable Deferred as on 1.1.17 that B1,5o, ou Curula as fferences Cunmuloduo deferred tax liability differences to will result in future taxable amounts. P 60,000 = $1,50,000 luov, open 8. 20,000 Deferred tax coact liability ta an on 1. 1. 17 850,000 Cunulature dejenned tox asset tining differences that will result in future taxable Progets amount 820,000

$2,30,000 -- Circulatiuo temporany difference as at 31.12.17 results in amount o future taxable propits differences 95,000 0. Cuntature tempany auf as at 31.12.17 resulting in fiture deductible amount 8 1,50,000 000 opening temparany difference as on 1-1-17 resulting in future taxable amounts. 2,30,000 Closing temporany difference 31.12.17 reauthing cn. taxable amount as at future 8.80,000 Tining differena arisen period 1.1.17 to 31.12.17

L exarang difference as at 1.1.11 rantie in deditcluble Mood 9510 Taxab Cunutdin tempanany Litterence as at 31-12 17 resulting in deducible amount Add which $ 45000 Timing difference arsen on period 1.1-17 to 31.12.17 resulting in deducible amount

're tax financial Income Taxable income for 2017 80,000 ON Add :- Timing difference which will reault in future & taxable anount Less - Tirany difference which will result in deductible amount Pre tax financial U Income Journal Entry 8 45,ooo 140,000 of Income Tax (81,40,000 is financial Expense - Pre tax Income) 401 of 3 140,000 8 $6,000 = 8 42,000 Income tax payable - ( 8 106,000 x 40 y.) (yol of Taxable Income) $ 105,000 Deferred tax Asset as

ed tax Asset - B 2000 $ 18,000 opening deffered tog deftened tax Asset of a Couoy: 0195000) deffenence delenned tax acat in for the period 1.1.17 to 31.12.17 geening deffered tax liability = B 6o,o. Closing deffered tax lialdy = 8 92,00 (407. of $230,000) difference deffered $ 32,00 d ice tax liabity for the period 1.1.17 to 31.12.17 Income Tax Expense Deferred Tax Asset * 56,000 18,000 0.00 In To To Income Deferred Tax Tax Payable 42,000 liability 32,000

$20000 38,000 Income before tax. 3 140,000 17 60,000 2,00 Income tax expense. aunnent tax. 8 42, oro Deferred tax. & 14, ocro. $32,000 - $ 18,000) Liability – Asset $ 84,000 ed since the for same all tax the rate was. years and there there is diffenena the will be Income tax no permenant effectuo tax rate. samé de 407. expense (42,000 +14,000 1,40,oo 56,000 = 1,40,000 40%