Question

Corning-Howell reported taxable income in 2018 of $230 million. At December 31, 2018, the reported amount of some assets and liabilities in the financial statements differed from their tax bases as indicated below: Carrying Tax Basis $ 20 million $ 14 million 46 million 4 million Assets Current Net accounts receivable Prepaid insurance Prepaid advertising Noncurrent Investments at tair value with changes in OCI. Buildings and equipment (net) Liabilities Current Liability-subscriptions received Long-term Liability-postretirement benefits 5 million 440 million 360 million 24 million 620 million 0 "Gains and losses taxable when investments are sold. The total deferred tax asset and deferred tax liability amounts at January 1, 2018, were $270 million and $50 million, respectively. The enacted tax rate is 40% each year. Required: 1. Determine the total deferred tax asset and deferred tax liability amounts at December 31, 2018 2. Determine the increase (decrease) in the deferred tax asset and deferred tax liability accounts at December 31, 2018. 3. Determine the income tax payable currently for the year ended December 31, 2018 4. Prepare the journal entry to record income taxes for 2018 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4

Answer 1

Answer -

1. Answer -

Deferred tax amounts ($ in millions)
Classification	Amount
Deferred tax asset	$260
Deferred tax liability	$54

Calculation :

Deferred Tax Asset :
Net accounts receivable [($14 - $20) * 40%]	$2.4
Subscriptions received [$24 * 40%]	$9.6
Post-retirement benefits [$620 * 40%]	$248
Deferred tax asset	$260
Deferred Tax Liability :
Prepaid insurance [$46 * 40%]	$18.4
Prepaid advertising [$4 * 40%]	$1.6
Investments [$5 * 40%]	$2
Building and equipment (net) [($440 - $360) * 40%]	$32
Deferred tax liability	$54

2. Answer -

	($ in millions)
	Deferred tax asset	Deferred tax liability
The increase (decrease) at December 31, 2018	($10)	$4

Calculation :

Deferred Tax Asset :
Ending balance (at January 31, 2018	$260
Less : Beginning balance (at January 1, 2018	$270
Decrease	($10)
Deferred Tax Liability :
Ending balance (at January 31, 2018	$54
Less : Beginning balance (at January 1, 2018	$50
Increase	$4

3. Answer -

Income tax payable for current year ended December 31, 2018

Income tax payable = $230 million * 40% (tax rate)

Income tax payable = $230 million * 0.40

Income tax payable = $92 million

4. Answer -

Event	General Journal	Debit	Credit
1	Income Tax Expense	$106
	Deferred Tax Asset		$10
	Deferred Tax Liability		$4
	Income Tax Payable		$92