CHAPTER 16- ACCOUNTING FOR INCOME TAX

PROBLEM 16-14
ANSWER: C. 1,770,000
SOLUTION
Financial Income 6,200,000
Interest revenue on Gov’t bonds -200,000

Tax depreciation in excess of financial depreciation

-100,000
(600,000-500,000)

Taxable Income 5,900,000

Current Tax expense (30%x 5,900,000) 1,770,000

PROBLEM 16-15
ANSWER: C. 1,650,000
SOLUTION
Accounting for financial income per book 6,000,000
Interest revenue on Gov’t bonds -500,000
Accounting or financial income subject to tax 5,500,000

Total income tax expense (30%x5,500,000) 1,650,000

PROBLEM 16-16
ANSWER: A. 111,000
SOLUTION
Pre tax income 400,000
Payment of penalty per book 15,000
415,000
Less :40,000-20,000 -20,000
Less: 125,000-100,000 -25,000
370,000

(370,000x30%) 111,000
PROBLEM 16-17
ANSWER: C. 50,000
SOLUTION
Pre tax income 800,000
Nontaxable gain -350,000
450,000
Less: Depreciation deducted for tax purposes -50,000
400,000

400,000x30% 120,000
Estimated tax payment during the current year -70,000
Current Tax liability 50,000

PROBLEM 16-18
ANSWER: A. 45,000
SOLUTION
Current Provision (150,000x 30%) 45,000

PROBLEM 16-19
ANSWER: D. 327,000
SOLUTION:
Pretax accounting income 1,000,000
Permanent difference:
Premium on offices' life insurance 90,000
Accounting income subject to tax 1,090,000

Total tax expense (30% x 1,090,000) 327,000

PROBLEM 16-20
ANSWER: D. 75,000
SOLUTION
The deffered tax liability of P75,000 is noncurrent.

PROBLEM 16-21
ANSWER: D. 160,000
SOLUTION
Current tax expense 260,000
Less: Income tax benefit from increase in deffered asset (400,000
100,000
- 300,000)
Total income tax expense 160,000

PROBLEM 16-22
ANSWER: C. 800,000
SOLUTION
The impact of the difference in the equipment of
P800,000 is a higher financial income and therefore
will result to deffered tax liability. Accordingly, it is a
future taxable temporary difference.

PROBLEM 16-23
ANSWER: A. 150,000
SOLUTION
Deffered tax liability (500,000 x 30%) 150,000

Problem 16-24
Answer: B
Solution
Increase in deferred tax liability (1,500,000 - 1,000,000) 500,000
Decrease in deferred tax asset (400,000 - 0) 400,000
Net deferred tax expense 900,000

Problem 16-25
Answer: B
Solution
Accrual method - accounting or financial income (3.2M + 5.2M)
8,400,000
Installment method - taxable income (1.2M + 2.8M) (4,000,000)
Future taxable amount 4,400,000

Deferred tax liability - Dec 31, 2021 (4.4M x 30%) 1,320,000

Problem 16-26
Answer: C
Solution
Decrease in deferred tax asset 90,000
Decrease in deferred tax liability (700,000*.30) 210,000
Deferred tax expense 300,000

Problem 16-27
Answer: D
Solution
Deferred tax asset - Singapore 800,000
Deferred tax liability - Singapore (600,000)
Net deferred tax asset - Singapore 200,000

Deferred tax liability - Malaysia 300,000

Problem 16-28
Solution
Question 1 Answer: B
Current tax expense (1,400,000 x 30%) 420,000

Question 2 Answer: C
Solution
Pretax financial income 1,600,000
Nontaxable interest received (50,000)
Financial income subject to tax 1,550,000

Total tax expense (1,550,000 x 30%) 465,000

Question 3 Answer: C
Solution
Deferred tax liability (250,000 x 30%) 75,000

Question 4 Answer: A
Solution
Deferred tax asset (100,000 x 30%) 30,000

PROBLEM 16-29
Question 1. Answer: A. 2,100,000
Taxable Income 7,000,000
Multiply by tax rate 30%
Current tax expense 2,100,000

Question 2. Answer: B. 2,340,000

Net income subject to tax 7,800,000
Less: Install accounts receivable 1,000,000
Add: Litigation liability 200,000
Taxable Income 7,000,000

Net income subject to tax 7,800,000

Multiply by tax rate 30%
Total Tax Expense 2,340,000

Question 3. Answer: C. 300,000

Installment accounts receivable reported in books 1,000,000
Multiply by tax rate 30%
Deffered tax liability 300,000

Question 4. Answer: C. 60,000

Difference in accounts receivable - 2022 400,000
Less: Litigation liability 200,000
200,000
Multiply by tax rate 30%
Deffered tax asset 60,000

PROBLEM 16-30
Question 1. Answer: B. 360,000

Question 2. Answer: D. 678,000

Income before tax 2,500,000
Less: Interest Income received 360,000
Income subject to tax 2,140,000
Less: Tax depreciation in excess of financial statement amount
160,000
Add: Rent received in advance 280,000
Taxable Income 2,260,000
Multiply by tax rate 30%
Current tax expense 678,000

Question 3. Answer: A. 498,000

Tax expense 678,000
Less: Estimated tax payment 180,000
Icome tax payable 498,000

Question 4. Answer: C. 642,000

Income subject to tax 2,140,000
Multiply by tax rate 30%
Total tax expense 642,000

PROBLEM 16-31
Question 1. Answer: A. 2,715,000
Income before tax 9,700,000
Add: Non-deductible expenses -
Less: Interest income on tax exempt municipal bonds 300,000
Income subject to tax 9,400,000
Less: Deferred tax liability 500,000
Add: Deferred tax asset 150,000
Taxable income 9,050,000
Multiply by tax rate 30%
Current Tax Expense 2,715,000

Question 2. Answer: A. 2,820,000

Income before tax 9,700,000
Less: Nontaxable income 300,000
Income subject to tax 9,400,000
Multiply by tax rate 30%
Total Tax Expense 2,820,000

Question 3. Answer: B. 150,000

Depreciation claiimed on the tax return in excess
of financial depreciation 500,000
Multiply by tax rate 30%
Deferred tax liability 150,000

Question 4. Answer: B. 45,000

Warranty expense reported on the income statement 200,000
Less: Actual warranty expenditure 50,000
150,000
Multiply by tax rate 30%
Deferred tax asset 45,000

PROBLEM 16-32
QUESTION 1 ANSWER B. 360,000

Dffered tax asset - 12/31/2020 (30% x 1,200,000) 360,000

The accrual for product liability in excess of actual claim
ia a future deductible amount and therefore will result
to a deffered tax asset

QUESTION 2 ANSWER A. 1,020,000

Excess tax depreciation 800,000

Installment sales income 2,600,000
Total future taxable amount 3,400,000

Deffered tax liability - 12/31/2020 (30% x 3,400,00) 1,020,000

QUESTION 3 ANSWER C. 660,000

Net deffered tax expense (1,020,000 - 360,000) 660,000

QUESTION 4 ANSWER A. 3,060,000

Taxable income 8,000,000

Excess tax depreciation 800,000
Estimated product cslim liability -1,200,000
Installment sales income not included in taxable income 2,600,000
Accounting income subject to tax 10,200,000

Total income tax expense (30% X 10,200,000) 3,060,000

PROBLEM 16-33
QUESTION 1 ANSWER B. 1,600,000

Pretax accounting income 2,000,000

Permanent differences
Interest income -500,000
Insurance premium 100,000
Accounting income subject to tax 1,600,000
Temporary differences
Gross profit on installment sale -4,500,000
Warranty liability 2,000,000
Operating loss carryover 900,000

QUESTION 2 ANSWER A. 870,000

Warranty liability (2,000,000 x 30%) 600,000

Operating loss carryover (900,000 x 30 %) 270,000
Deffered tax asset 870,000

QUESTION 3 ANSWER B. 1,350,000

Gross profit on installment sale (30% x 4,500,000) 1,350,000

QUESTION 4 ANSWER D. 0
Zero because there is an - operating loss carryover

QUESTION 5 ANSWER C. 480,000

Tax expense from deffered liability 1,350,000

Tax benefit from deferred tax asset -870,000
Net deffered tax expense 480,000

Cureent tax expense 0

Net deffered tax expense 480,000
Total income tax expense 480,000

Problem 16-34
1. C
2. B
3. A
4. B
5. B
6. A
7. B
8. A
9. A
10. B

PROBLEM 16-35
1. A
2. C
3. D
4. A
5. A

PROBLEM 16-36
1. C
2. C
3. C
4. D
5. D
6.D
7. D
8. C
9. C
10. C

PROBLEM 16-37
1. C
2. B
3. D
4. C
5. C