Chapter16AccountingforIncomeTaxes
EXERCISESfutureSincetaxableincomeislessthanaccountingincome,a
taxable amount will occur when the temporary
Exercise161
difference reverses. This means a deferred tax liability
shouldberecordedtoreflectthefuturetaxconsequencesof
thetemporarydifference.
($inmillions)
Incometaxexpense(tobalance)
Deferredtaxliability([$80million50million]x35%)
Incometaxpayable($50millionx35%)
28.0
10.5
17.5
Exercise162
Incometaxexpense(tobalance)
Deferredtaxasset($90,000x40%)
Incometaxpayable(given)
Alternate Exercise and Problem Solutions
249,000
36,000
285,000
The McGraw-Hill Companies, Inc., 2013
16-1
Exercise163
Requirement1
($inmillions)
Current
Future
Year
2013
Deductible
Amounts
Temporarydifference:
Taxableincome
Enactedtaxrate
Taxpayablecurrently
Deferredtaxasset
(280)
720
40%
40%
288
(112)
Deferredtaxasset:
Endingbalance(balancecurrentlyneeded)
Less:beginningbalance($300x40%)
Changeneededtoachievedesiredbalance
$112
(120)
$(8)
Journalentriesattheendof2013
Incometaxexpense(tobalance)
Deferredtaxasset(determinedabove)
Incometaxpayable(determinedabove)
Valuationallowancedeferredtaxasset
Incometaxexpense
296
40
8
288
40
Ofcourse,thesetwoentriescanbecombined.
The McGraw-Hill Companies, Inc., 2013
16-2
Intermediate Accounting, 7e
Exercise163(concluded)
Requirement2
($inmillions)
Incometaxexpense(tobalance)
Deferredtaxasset(determinedabove)
Incometaxpayable(determinedabove)
296
Incometaxexpense
16
Valuationallowancedeferredtaxasset([1/2x$112]$40)
8
288
16
Ofcourse,thesetwoentriescanbecombined.
Exercise164Requirement1
Accountingincome
Permanentdifference:
Municipalbondinterest
Temporarydifference:
Depreciation
($inthousands)
Current
Future
Year
Taxable
2013
Amounts
201420152016
Future
Taxable
Amounts
900
(160)
(40)
(8)
8 40
40
Taxableincome
700
Enactedtaxrate
Taxpayablecurrently
Deferredtaxliability
40%
280
40%
Deferredtaxliability:
Endingbalance(balancecurrentlyneeded)
Less:beginningbalance
Changeneededtoachievedesiredbalance
16
$16
0
$16
Journalentryattheendof2013
Alternate Exercise and Problem Solutions
The McGraw-Hill Companies, Inc., 2013
16-3
Incometaxexpense(tobalance)
Deferredtaxliability(determinedabove)
Incometaxpayable(determinedabove)
296
16
280
Requirement2
($inthousands)
Pretaxaccountingincome
Incometaxexpense
Netincome
$900
(296)
$604
IncomeStatement
Exercise165
ForthefiscalyearendedJune30,2013
Revenues
Costofgoodssold
Grossprofit
Operatingexpenses
Incomefromcontinuingoperationsbeforeincometaxes
Incometaxexpense
Incomebeforeextraordinaryitemanddiscontinuedoperations
Lossondiscontinuedoperations,
lessapplicableincometaxesof$16
Extraordinarycasualtyloss,less
applicableincometaxesof$2
Netincome
($inmillions)
$415
(175)
$240
(90
)
$150
(60)
$90
(24)
(3)
$63
PROBLEMS
The McGraw-Hill Companies, Inc., 2013
16-4
Intermediate Accounting, 7e
Problem161
Requirement1
($inmillions)
Accountingincome
Temporarydifference:
Lotsales
Taxableincome
Enactedtaxrate
Taxpayablecurrently
Deferredtaxliability
Current
Year
2013
Future
Taxable
Amounts
201420152016
Future
Taxable
Amounts
[total]
68
(48)
16
20
12
48
20
40%
8
40%
19.2
Deferredtaxliability:
Endingbalance(balancecurrentlyneeded)
Less:beginningbalance
Changeneededtoachievedesiredbalance
$19.2
(0.0)
$19.2
Journalentryattheendof2013
Incometaxexpense(tobalance)
Deferredtaxliability(determinedabove)
Incometaxpayable(determinedabove)
27.2
19.2
8.0
Problem161(concluded) Requirement2
($inmillions)
Current
Year
2014
Alternate Exercise and Problem Solutions
Future
Taxable
Amounts
20152016
Future
Taxable
Amounts
[total]
The McGraw-Hill Companies, Inc., 2013
16-5
Accountingincome
Temporarydifference:
Lotsales
Taxableincome
Enactedtaxrate
Taxpayablecurrently
Deferredtaxliability
60
16
20
12
32
76
40%
30.4
35%
11.2
Deferredtaxliability:
Endingbalance
Less:beginningbalance
Changeneededtoachievedesiredbalance
$11.2
(19.2)
$(8.0)
Journalentryattheendof2014
Incometaxexpense(tobalance)
Deferredtaxliability(determinedabove)
Incometaxpayable(determinedabove)
22.4
8.0
30.4
Requirement3
Thebalanceinthedeferredtaxliabilityaccountattheendof2014wouldhave
been$12.8millionifthenewtaxratehadnotbeenenacted:
Futuretaxableamounts
Previoustaxrate
Deferredtaxliability
$32million
40%
$12.8million
Theeffectofthechangeisincludedinincometaxexpense,becauseincometax
expenseislessthanitwouldhavebeeniftheratehadnotchanged.
The McGraw-Hill Companies, Inc., 2013
16-6
Intermediate Accounting, 7e
Problem162Requirement1
($in000s)
PriorYears
20112012
Accountingloss
Permanentdifference:
Finepaid
Temporarydifferences:
Losscontingency
Taxableloss
Losscarryback
Losscarryforward
Enactedtaxrate
Taxpayable(refundable)
Deferredtaxasset
Current
Year
2013
Future
Deductible
Amounts
[total]
(540)
20
(300) (120)
40% 40%
(120) (48)
40
(480)
420
60
0
40%
0
(40)
(60)
(100)
40%
(40)
Deferredtaxasset:
Endingbalance(balancecurrentlyneeded)
Less:beginningbalance
Changeneededtoachievedesiredbalance
$40
(0)
$40
Journalentryattheendof2013
Receivableincometaxrefund($120+48)
Deferredtaxasset(determinedabove)
Incometaxbenefit(tobalance)
Alternate Exercise and Problem Solutions
168
40
208
The McGraw-Hill Companies, Inc., 2013
16-7
Requirement2
($in000s)
Operatinglossbeforeincometaxes
Less:Incometaxbenefit:
Taxrefundfromlosscarryback
Futuretaxbenefits
Netoperatingloss
Problem162(concluded)
$540
$168
40
208
$332
Requirement3
($in000s)
Current
Year
2014
Accountingincome
Temporarydifferences:
Losscontingency
Operatinglosscarryforward
Taxableincome
Enactedtaxrate
Taxpayable
Deferredtaxasset
Future
Deductible
Amounts
240
(40)
(60)
140
40%
56
0
40%
0
Deferredtaxasset:
Endingbalance(balancecurrentlyneeded)
Less:beginningbalance
Changeneededtoachievedesiredbalance
$0
(40)
$(40)
Journalentryattheendof2014
Incometaxexpense(tobalance)
Deferredtaxasset(determinedabove)
Incometaxpayable(determinedabove)
The McGraw-Hill Companies, Inc., 2013
16-8
96
40
56
Intermediate Accounting, 7e
Alternate Exercise and Problem Solutions
The McGraw-Hill Companies, Inc., 2013
16-9
