Answer:
Explanation:
1.
Determine the amounts necessary to record income taxes for
2021, and prepare the appropriate journal entry.
Pretax accounting income (given) $76
b. Add back permanent difference – fine 2
Adjusted pretax accounting income $78
a. Deduct excess from installment sales (3) DTL
c. Deduct excess tax depreciation (15) DTL
d Add excess warranty expense 1 DTA
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d. Add excess warranty expense 1 DTA
e. Add expense for future absences 7 DTA
f. Deduct loss contingency reversal (2) DTA reversal
Taxable Income $66
Tax expense (plug) 31.2
Deferred tax asset [40% x (1+7-2)] 2.4
Deferred tax liability [40% x (3+15)] 7.2
Taxes payable (40% x 66) 26.4
2.
What is the 2013 net income?
Pretax accounting income (given) $76.0
Less: Tax expense (computed in Part 1) (31.2)
Net Income $44.8
3.
Show how any deferred tax amounts would be classified and
reported in the 2013 balance sheet.
From the Installment Receivable (a):
$0.8 as a current deferred tax liability (2014: 40% x $2)
$0.8 as a noncurrent deferred tax liability (2015: 40% x $2)
From the Depreciation (c):
$8.4 as a noncurrent deferred tax liability {40% x [(20+20) – (12+7)]}
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From the Warranty Expense/Payable (d):
$0.8 as a current deferred tax asset (40% x $2)
From the Accrued Expense/Payable (e):
$1.6 as a current deferred tax asset (40% x $4)
$1.2 as a noncurrent deferred tax asset (40% x $3)
Current Deferred Tax Asset (0.8 + 1.6) $2.4
Current Deferred Tax Liability (0.8)
Net Current Deferred Tax Asset $1.6
Noncurrent Deferred Tax Asset $1.2
Noncurrent Deferred Tax Liability (0.8 + 8.4) (9.2)
Net Noncurrent Deferred Tax Liability $8.0
