SEMINAR 1 MODULE: ACCOUNTING FOR INCOME TAX R.F.

RAMOS

Eden Company had pretax accounting income of 3. Cascade’s pre-tax accounting income amounts to
P24,000 during 2018. Eden's only temporary difference A. P389,000
for 2018 relates to a sale made in 2016 and recognized B. P405,000
for accounting purposes at that time. However, Eden C. P414,000
uses the installment sales method of revenue D. P434,000
recognition for tax purposes. During 2018 Eden
collected a receivable from the 2016 sale which resulted Innovative Company's income statement for the year
in P6,000 of income under the installment sales method. ended December 31, 2018, shows pretax income of
P300,000. The following items are treated differently on
1. Eden's taxable income for 2018 would be the tax return and in the accounting records:
A. P6,000.
B. P18,000. Tax Accounting
C. P24,000. Return Records
D. P30,000. Warranty expense P170,000 P185,500
Depreciation expense 150,000 100,000
Premiums on officers'
Beta had taxable income of P1,500 during 2018. Beta life insurance -- 60,000
used accelerated depreciation for tax purposes (P2,000)
and straight-line depreciation for financial reporting
purposes (P800). On December 30, 2018, Beta collected Assume that the tax rate for 2018 is 30 percent.
the January 2015 rent of P600 on a lot it rents on a
month-by-month basis to a lessee. 4. What is the current portion of the total income tax
expense for 2018?
2. Beta’s pretax accounting income for 2018 would be A. P79,650
A. P900. B. P90,150
B. P2,100. C. P97,650
C. P3,300. D. P108,150
D. P3,700.

In 2018, Eric Company reported P90,000 income before

Cascade Company is determining the amount of its pre- income taxes. The income tax rate for 2018 was 30
tax accounting income for 2018 by making adjustments percent. Eric had an unused P60,000 net operating loss
to taxable income from the company’s income tax carryforward arising in 2013 when the tax rate was 35
return. The tax return indicates taxable income of percent.
P380,000, on which a tax liability of P133,000 has been
recognized. 5. The income tax expense Eric would report for 2018
would be
Following is the list of items that may be required to A. P6,000.
determine pre-tax financial income from the amount of B. P9,000.
taxable income: C. P10,500.
 Accelerated depreciation for income tax purposes D. P27,000.
was P134,000; straight-line depreciation on these
assets is P80,000.
 Goodwill impairment loss of P45,000 was not Ball Company is in its fifth year of operation. Ball's 2018
included as a deduction in the tax return, but may income statement showed pretax accounting income of
be deducted in the income statement. P625,000. To compute the income tax liability, the
 Several expenses were included in the income tax following 2018 data are provided:
return on an estimated basis. These items will be in
the income statement at the same amount but are Income from exempt government bonds P 25,000
subject to change if new information in the future Depreciation deducted for tax purposes
indicates that the original estimates were in excess of depreciation deducted for
inaccurate. financial statement purposes 50,000
 Interest on treasury bills was not included in the tax Estimated income tax payments made 125,000
return. During the year, P25,000 was received on Enacted corporate income tax rate 30%
these investments.

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6. What amount of current income tax liability should
be included in Ball's December 31, 2018 statement The income tax rate is 30%.
of financial position?
A. P40,000 9. On December 31, 2018 statement of financial
B. P55,000 position, Miles Company should report a deferred
C. P62,500 tax liability of
D. P165,000 A. P90,000.
B. P390,000.
C. P660,000.
During 2018, Alpha Company had pretax accounting D. P1,050,000.
income of P420,000. Alpha’s only temporary difference
for 2018 was the collection of a receivable that resulted
in P120,000 of income under the installment sales A reconciliation of the financial statement and taxable
method of revenue recognition that Alpha uses for tax income for 2018 of Boom Company follows:
purposes. The sale was originally made in 2016 and
recognized for accounting purposes at that time. Pre-tax accounting income P6,000,000
Less: Permanent difference 500,000
7. Alpha’s taxable income for 2018 would be Accounting income subject to tax P5,500,000
A. P300,000. Less: Temporary difference:
B. P420,000. Capitalized interest for book;
C. P460,000. expensed for tax 200,000
D. P540,000. Taxable income P5,300,000

Cumulative temporary difference (future taxable

Beagle Company paid P20,000 in January of 2017 for amount) as of December 31, 2017 is P300,000 and as of
premiums on a two- year life insurance policy which December 31, 2018 is P500,000. The tax rate was 30%.
names the company as the beneficiary. Additionally,
Beagle Company's financial statements for the year 10. What amount should Boom report as deferred tax
ended December 31, 2017, revealed the company paid liability in its December 31, 2018 statement of
P105,000 in taxes during the year and also accrued financial position?
estimated litigation losses of P200,000. The lawsuit was A. Zero
resolved in February of 2018 (at which time a P200,000 B. P60,000
loss was recognized for tax purposes) and that Beagle’s C. P90,000
tax rate is 30% for both 2017 and 2018. D. P150,000

8. What amount should Beagle report as asset for net

deferred income taxes (offsetting applies) on its The next three items are based on the following:
2017 statement of financial position? Stabilizer Company reported a taxable income of P8
A. P54,000 million in its income tax return for the year ended
B. P57,000 December 31, 2018, its first year of operations.
C. P60,000 Temporary differences between financial income and
D. P66,000 taxable income for the year are as follows:

Tax depreciation in excess of book

Miles Company which began operations on January 1, depreciation P 800,000
2016 recognizes income from long-term construction Accrual for product liability claims in
contracts under the percentage of completion method in excess of actual claims 1,200,000
its financial statements and the cost recovery method for Reported installment sales income in
income tax reporting. Income under each method excess of taxable installment sales 2,600,000
follows: income

Cost Percentage of The enacted income tax rate for 2018 and future years is
recovery completion 30%.
2016 -- P 600,000
2017 P 800,000 1,200,000 11. What is the total income tax expense to be reported
2018 1,400,000 1,700,000 in the 2018 income statement?
P 2,200,000 P 3,500,000 A. P2,400,000

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 B. P2,640,000 A. Zero; P2,100,000; P2,100,000
C. P2,820,000 B. P240,000; P2,100,000; P2,100,000
D. P3,060,000 C. P240,000; P2,100,000; P2,340,000
D. P360,000; P2,100,000; P2,460,000
12. What is the deferred tax asset on December 31,
2018?
A. Zero West Company had the following carrying amounts of
B. P240,000 assets and liabilities on December 31, 2018:
C. P360,000
D. P780,000 Property P10,000,000
Plant and equipment 5,000,000
13. What is the deferred tax liability on December 31, Inventory 4,000,000
2018? Trade receivables 3,000,000
A. Zero Trade payables 6,000,000
B. P1,020,000 Cash 2,000,000
C. P1,140,000
D. P1,380,000 The values for tax purposes for property and for plant
and equipment were P7 million and P4 million,
respectively. The entity has made a provision for
On December 31, 2018, South Company has revalued its inventory obsolescence of P2 million which is not
property and has recognized the increase in the allowed for tax purposes. Further, an impairment
revaluation in its financial statements. The carrying charge against trade receivables of P1 million has been
value of the property was P8 million and the revalued made. This charge will not be allowed in the current
amount was P10 million. However, the tax base of the year for tax purposes. The tax rate for 2018 is 30%.
property was only P6 million. The income tax rate is
30%. 16. West should recognize a net deferred tax provision
for 2018 at
14. What is the deferred tax asset or liability on A. P300,000
December 31, 2018? B. P900,000
A. P600,000 asset C. P1,200,000
B. P600,000 liability D. P2,100,000
C. P1,200,000 asset
D. P1,200,000 liability
Prince Company's partial income statement after its first
year of operations is as follows:
The difference between the book basis and tax basis of
the assets and liabilities of Chamber Company at the Income before income taxes P3,500,000
end of 2018 are presented below: Income tax expense
Current P966,000
Book Tax Deferred 84,000 1,050,000
Basis Basis Net income P2,450,000
Installment accounts
receivable P1,000,000 0 Prince uses the straight-line method of depreciation for
Litigation liability 200,000 0 financial reporting purposes and accelerated
depreciation for tax purposes. The amount charged to
It is estimated that the litigation liability will be settled depreciation expense on its books this year was
in 2019. The difference in accounts receivable will result P1,400,000. No other differences existed between book
in taxable amounts of P600,000 in 2019 and P400,000 in income and taxable income except for the amount of
2018. Chamber has a taxable income of P7 million in depreciation.
2018 and is expected to have taxable income in each of
the following two years. The income tax rate is 30%. 17. Assuming a 30% tax rate, what amount was
This is the first year of operations of Chamber and the deducted for depreciation on the corporation's tax
operating cycle of the business is two years. return for the current year?
A. P1,120,000.
15. What are the net deferred tax expense, current tax B. P1,330,000.
expense and total income tax expense, respectively, C. P1,400,000.
of Chamber? D. P1,680,000.

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Analysis of the assets and liabilities of Marie Company
on December 31, 2018 disclosed assets with a tax basis of The next two items are based on the following:
P1,000,000 and a book basis of P1,300,000. There was no On January 1, 2018, Tolkien Company purchased bonds
difference in the liability basis. The difference in asset at face amount of P3 million. The business model in
basis arose from temporary differences that would managing the financial asset is to collect contractual
reverse in the following years: cash flows composed of principal and interest and to
sell the asset in the open market. The bonds mature on
2019 P222,000 January 1, 2022 and pay 10% interest annually every
2020 78,000 December 31 of each year. The bonds are quoted at 95
on December 31, 2018 and 80 on December 31, 2019.
The enacted tax rates are 30 percent for the years 2018-
2019 and 35 percent for 2020. The tax law states that the tax base of the financial asset
is cost and any gain is taxable when realized and any
18. The total deferred tax liability on December 31, loss on the asset is deductible when incurred. The
2018, should be income tax rate is 30%.
A. P69,000.
B. P90,000. 21. What is the deferred tax asset on December 31,
C. P93,900. 2018?
D. P105,000. A. Zero
B. P45,000
C. P105,000
At December 31, 2018 Raymond Company reported a D. P150,000
deferred tax liability of P90,000 which was attributable
to a taxable type temporary difference of P300,000. The 22. What is the deferred tax asset on December 31,
temporary difference is scheduled to reverse in 2020. 2019?
During 2019, a new tax law increased the corporate tax A. P135,000
rate from 30% to 40%. B. P180,000
C. P420,000
19. Raymond should record this change by debiting D. P600,000
A. Retained Earnings for P9,000.
B. Retained Earnings for P30,000.
C. Income Tax Expense for P9,000. Festival Company located businesses in two countries:
D. Income Tax Expense for P30,000. Malaysia and Singapore. In both countries, the entity
has the legal right to offset the taxes receivable and
payable.
Palmer Company had a deferred tax liability balance
due to a temporary difference at the beginning of 2018 The following information related to deferred tax assets
related to P600,000 of excess depreciation. In December (DTA) and deferred tax liabilities (DTL):
of 2018, a new income tax act is signed into law that
lowers the corporate rate from 40% to 35%, effective Classification Amount Taxing Country
January 1, 2020. Taxable amounts related to the DTA P800,000 Singapore
temporary difference are scheduled to be reversed by DTL 300,000 Malaysia
P300,000 for both 2019 and 2020. DTL 600,000 Singapore

20. Palmer should increase or decrease deferred tax 23. How should the entity present deferred taxes at
liability by what amount? year-end?
A. Decrease by P15,000
B. Decrease by P30,000 DTA DTL
C. Increase by P15,000 A. Zero P1,000,000
D. Increase by P30,000 B. P200,000 P300,000
C. P200,000 P600,000
D. P800,000 P900,000

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