Question

The following facts relate to Shamrock Corporation. 1. Deferred tax liability, January 1, 2017, $70,000. 2. Deferred tax asset, January 1, 2017, $23,600. 3. Taxable income for 2017, $123,900. 4. Cumulative temporary difference at December 31, 2017, giving rise to future taxable amounts, $271,400. 5. Cumulative temporary difference at December 31, 2017, giving rise to future deductible amounts, $112,100. 6. Tax rate for all years, 40%. No permanent differences exist. 7. The company is expected to operate profitably in the future. Compute the amount of pretax financial income for 2017, Pretax financial income

Answer 1

1)

Pretax Financial Income = 147,500 + 94,400 - 53,100 = 188,800

Cumulative temporary difference at 12/31/17 which will result in future taxable amounts	271,400.00
Cumulative temporary difference at 01/31/17 which will result in future taxable amounts	177,000.00
Originating difference in 2017 which will result in future taxable amounts	94,400.00
Cumulative temporary difference at 12/31/17 which will result in future deductible amounts	112,100.00
Cumulative temporary difference at 01/31/17 which will result in future deductible amounts	59,000.00
Originating difference in 2017 which will result in future deductible amounts	53,100.00
Originating difference which will result in future taxable amounts	94,400.00
Originating difference which will result in future deductible amounts	53,100.00
Taxable income for 2017	147,500.00

2)

	Debit	Credit
Income Tax Expense	75,520.00
Deferred Tax Asset	21,240.00
Income Tax Payable (147,500 x 40%)		59,000.00
Deferred Tax Liability		37,760.00

3)

Shamrock Corporation
Income Statement (Partial)
For the year Ended 2017
Income before Income taxes		$ 188,800.00
Income tax expenses
Current	$ 59,000.00
Deferred	$ 16,520.00	$   75,520.00
Net income		$ 113,280.00

4)Since there is no Permanent Differences, The tax effective rate will be 40%