Nalad Corp. provided the following data related to accounting and taxable income: 20X8 20X9 Pre-tax accounting...
Nalad Corp. provided the following data related to accounting
and taxable income:
| 20X8 | 20X9 | |||||
| Pre-tax accounting income (financial statements) | $ | 450,000 | $ | 465,000 | ||
| Taxable income (tax return) | 265,000 | 650,000 | ||||
| Income tax rate | 40 | % | 40 | % | ||
There are no existing temporary differences other than those
reflected in these data. There are no permanent differences.
Required:
1-a. How much tax expense would be reported in each year if the
taxes payable method was used?
1-b. What is the implied tax rate? (Round your answers to 1
decimal place.)
2-a. How much tax expense would be reported using comprehensive tax
allocation (liability method).
2-b. How much deferred income tax would be reported using
comprehensive tax allocation (liability method).
2-c. Why is the two year total tax expense is the same under both
tax payable method and liability method? (Select all that
apply.)
Homework Answers
1.a.
| 2018 | 2019 | |
| Pre-tax income…....(a) | 450000 | 465000 |
| Taxable income…......(b) | 265000 | 650000 |
| Tax rate…..(c) | 40% | 40% |
| Tax amount…(b*c)….....(d) | 106000 | 260000 |
1.b.
Implied tax rate refers to the rate of tax on the income as per Books
| 2018 | 2019 | |
| Pre-tax income…....(a) | 450000 | 465000 |
| Taxable income…......(b) | 265000 | 650000 |
| Tax rate…..(c) | 40% | 40% |
| Tax amount…(b*c)….....(d) | 106000 | 260000 |
| Implied tax rate.....(d/a) | 24% | 56% |
2a and b
Deferred tax liability to the extent of $74000 (185000*40%) shall be recognized in 2018 which gets reversed in next year owing to which the tax under both the methods coincide.
Tax as per Liability method shall be -
| 2018 | 2019 | |
| Pre-tax income…....(a) | 450000 | 465000 |
| Taxable income…......(b) | 265000 | 650000 |
| Tax rate…..(c) | 40% | 40% |
| Tax amount…(b*c)….....(d) | 106000 | 260000 |
| Difference…(a-b)…...(e) | 185000 | -185000 |
| Deferred tax amount….(e*c)….....(f) | 74000 | -74000 |
| Total tax amount in books…........(d+f) | 180000 | 186000 |
| Tax amount as per books …(b*c)….....(d) | 180000 | 186000 |
Add Answer to:
Nalad Corp. provided the following data related to accounting
and taxable income:
20X8
20X9
Pre-tax accounting...
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