ACCT 302 Connect Homework 16 Accounting for Income Taxes Assignment solutions complete answers

ACCT 302 Connect Homework 16 Accounting for Income Taxes Assignment solutions complete answers 

 

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Kara Fashions uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. Three years after its purchase, one of Kara’s buildings has a book value of $1,000,000 and a tax basis of $750,000. There were no other temporary differences and no permanent differences. Taxable income was $6 million and Kara’s tax rate is 25%.
 
What is the deferred tax liability to be reported in the balance sheet? Assuming that the deferred tax liability balance was $35,000 the previous year, prepare the appropriate journal entry to record income taxes this year.

 

Shannon Polymers uses straight-line depreciation for financial reporting purposes for equipment costing $540,000 and with an expected useful life of four years and no residual value. Assume that, for tax purposes, the deduction is 40%, 30%, 20%, and 10% in those years. Pretax accounting income the first year the equipment was used was $640,000, which includes interest revenue of $12,000 from municipal governmental bonds. Other than the two described, there are no differences between accounting income and taxable income. The enacted tax rate is 25%.
   
Prepare the journal entry to record income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Insure Corporation reported a net operating loss of $18 million for financial reporting and tax purposes. Taxable income last year and the previous year, respectively, was $19 million and $14 million. The enacted tax rate each year is 25%. Assume that Insure qualifies as a type of company that is allowed to carry back an NOL to two prior taxable years, using the earliest year first.
  
Prepare the journal entry to recognize the income tax benefit of the net operating loss. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

 

Southeast Airlines had pretax earnings of $45 million. Included in this amount is income from discontinued operations of $10 million. The company’s tax rate is 25%.

What is the amount of income tax expense that Southeast would report in its income statement for continuing operations? (Enter your answer in millions rounded to 2 decimal place (i.e., i.e., 5,500,000 should be entered as 5.50). Amount to be deducted should be indicated with a minus sign.)

 

Lance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when the warranty work is completed. At December 31, 2021, Lance has a warranty liability of $2 million and taxable income of $90 million. At December 31, 2020, Lance reported a deferred tax asset of $453,000 related to this difference in reporting warranties, its only temporary difference. The enacted tax rate is 25% each year.
 
Required:
Prepare the appropriate journal entry to record Lance’s income tax provision for 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

 

Southern Atlantic Distributors began operations in January 2021 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2021, 30% in 2022, and 20% in 2023. Pretax accounting income for 2021 was $560,000, which includes interest revenue of $68,000 from municipal governmental bonds. The enacted tax rate is 25%.
 
Assuming no differences between accounting income and taxable income other than those described above:
 
Required:
1. Complete the following table given below and prepare the journal entry to record income taxes in 2021.
2. What is Southern Atlantic’s 2021 net income?

 

The information that follows pertains to Esther Food Products:
 

a.   At December 31, 2021, temporary differences were associated with the following future taxable (deductible) amounts:

 
 
 
Depreciation
$
66,000
 
Prepaid expenses
 
28,000
 
Warranty expenses
 
(10,000
)
 
 

b.   No temporary differences existed at the beginning of 2021.

c.    Pretax accounting income was $109,000 and taxable income was $25,000 for the year ended December 31, 2021.

d.   The tax rate is 25%.


Required:
Complete the following table given below and prepare the appropriate journal entry to record income taxes for 2021.

 

Sherrod, Inc., reported pretax accounting income of $62 million for 2021. The following information relates to differences between pretax accounting income and taxable income:

a.   Income from installment sales of properties included in pretax accounting income in 2021 exceeded that reported for tax purposes by $7 million. The installment receivable account at year-end 2021 had a balance of $8 million (representing portions of 2020 and 2021 installment sales), expected to be collected equally in 2022 and 2023.

b.   Sherrod was assessed a penalty of $4 million by the Environmental Protection Agency for violation of a federal law in 2021. The fine is to be paid in equal amounts in 2021 and 2022.

c.    Sherrod rents its operating facilities but owns one asset acquired in 2020 at a cost of $44 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

 
Income Statement
 
Tax Return
 
Difference
2020
 
$
11
 
 
 
$
14
 
 
 
$
(3
)
 
2021
 
 
11
 
 
 
 
20
 
 
 
 
(9
)
 
2022
 
 
11
 
 
 
 
6
 
 
 
 
5
 
 
2023
 
 
11
 
 
 
 
4
 
 
 
 
7
 
 
 
 
$
44
 
 
 
$
44
 
 
 
$
0
 
 
 
d.   For tax purposes, warranty expense is deducted when costs are incurred. The balance of the warranty liability was $1 million at the end of 2020. Warranty expense of $5 million is recognized in the income statement in 2021. $3 million of cost is incurred in 2021, and another $3 million of cost anticipated in 2022. At December 31, 2021, the warranty liability is $3 million (after adjusting entries).

e.   In 2021, Sherrod accrued an expense and related liability for estimated paid future absences of $14 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($8 million in 2022; $6 million in 2023).

f.     During 2020, accounting income included an estimated loss of $2 million from having accrued a loss contingency. The loss is paid in 2021, at which time it is tax deductible.


Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2021, were $0.75 million and $1.00 million, respectively. The enacted tax rate is 25% each year.
 
Required:
1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.
2. What is the 2021 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2021 balance sheet.

 

Corning-Howell reported taxable income in 2021 of $156 million. At December 31, 2021, the reported amount of some assets and liabilities in the financial statements differed from their tax bases as indicated below:
  

 
Carrying Amount
 
Tax Basis
Assets
 
 
 
Current
 
 
 
Net accounts receivable
$
44
million
 
$
48
million
 
Prepaid insurance
 
56
million
 
 
0
 
 
Prepaid advertising
 
40
million
 
 
0
 
 
Noncurrent
 
 
 
 
 
 
 
 
Investments in equity securities (fair value)*
 
40
million
 
 
0
 
 
Buildings and equipment (net)
 
396
million
 
 
316
million
 
Liabilities
 
 
 
 
 
 
 
 
Current
 
 
 
 
 
 
 
 
Deferred subscription revenue
 
48
million
 
 
0
 
 
Long-term
 
 
 
 
 
 
 
 
Liability—compensated future absences
 
630
million
 
 
0
 
 
 
*Gains and losses taxable when investments are sold.
  
The total deferred tax asset and deferred tax liability amounts at January 1, 2021, were $174.25 million and $25 million, respectively. The enacted tax rate is 25% each year.
 
Required:
1. Determine the total deferred tax asset and deferred tax liability amounts at December 31, 2021.
2. Determine the increase (decrease) in the deferred tax asset and deferred tax liability accounts at December 31, 2021.
3. Determine the income tax payable currently for the year ended December 31, 2021.
4. Prepare the journal entry to record income taxes for 2021.

 

Fore Farms reported a pretax operating loss of $260 million for financial reporting purposes in 2021. Contributing to the loss were (a) a penalty of $4 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2021 and (b) an estimated loss of $20 million from accruing a loss contingency. The loss will be tax deductible when paid in 2022.
 
The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2021 other than those described above. Taxable income in Fores’s two previous years of operation was as follows:
 

 
 
 
 
2019
$
116
million
2020
$
92
million
 
 
Required:
1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2021. Assume Fore will carry back its NOL to prior years.
2. What is the net operating loss reported in 2021 income statement?
3. Prepare the journal entry to record income taxes in 2022 assuming pretax accounting income is $280 million. No additional temporary differences originate in 2022.