Intermediate accounting by robles empleo 1 answers chapter 5 vol 2 2009

Chapter 5 - Income Taxes
CHAPTER 5
INCOME TAXES
PROBLEMS
5-1.

5-2.

a.
b.
c.
d.
e.
f.
g.

Nontaxable
Nondeductible
Nondeductible
Temporary difference
Temporary difference
Temporary difference
Temporary difference

–
–
–
–

Future
Future

Future
Future

taxable amount
taxable amount
deductible amount
deductible amount

Pretax financial income

P11,000,00
0
640,000

Add Nondeductible expenses (b + c) 600,000 +
40,000
Less Nontaxable income (a)
Financial income subject to tax

(3,000,000)
P
8,640,000
1,150,000

Add Future deductible amounts (f + g) 750,000 +
400,000
Less Future taxable amounts (d + e) 1,500,000 +
1,000,000
Taxable income
Income Tax Expense – Current

Income Tax Payable
30% x 7,290,000

(2,500,000)
P7,290,000

2,187,000

Income Tax Expense – Deferred
Deferred Tax Liability
30% x 2,500,000

750,000

Deferred Tax Asset
Income Tax Expense – Deferred
30% x 1,150,000

345,000

2,187,000

750,000

345,000

or one compound entry may be made as follows:
Income Tax Expense – Current
Income Tax Expense – Deferred
Deferred Tax Asset

Income Tax Payable
Deferred Tax Liability
(Luzon Corporation)
(a)
Pretax financial income
Future taxable amount
Taxable income
Income tax payable: 30% x 1,200,000
P360,000

2,187,000
405,000
345,000
2,187,000
750,000

5-3.

(b)

Income Tax Expense – Current
Income Tax Expense – Deferred

51

P3,000,000
(1,800,000)
P1,200,000

360,000

540,000


Chapter 5 - Income Taxes
Income Tax Payable
Deferred Tax Liability
30% x 1,200,000 = 360,000
30% x 1,800,000 = 540,000

360,000
540,000

5-4.

(Visayas Corporation)
(a)
Pre tax financial income
Future deductible amount
1,550,000
Taxable income
Income tax payable: 30% x 3,550,000
(b)

465,000
5-5.

Income Tax Expense-Current
Deferred Tax Asset
Income Tax Payable
Income Tax Benefit-Deferred

P2,000,000
P3,550,000
P1,065,000
1,065,000
465,000
1,065,000

(Mindanao Corporation)
Income Tax Expense – Current
1,560,000
Deferred Tax Asset
600,000
Deferred Tax Liability
185,000
Income Tax Expense – Deferred (Benefit)
415,000
Income Tax Payable
1,560,000
30% x 5,200,000 = 1,560,000
30% x 2,000,000 = 600,000
(30% x 500,000) + (35% x 100,000) = 185,000

5-6.

(Samar, Inc.)
Income Tax Expense – Current (30% x 2,000,000)
Income Tax Expense – Deferred (180,000 – 159,000)
(21,000)
Income Tax Expense – Total

579,000
Income Tax Payable (see above)
600,000
Deferred Tax Asset: 30% x (360,000 + 240,000)
180,000
Deferred Tax Liability: 30% x 530,000

P 600,000
P
P
P
P 159,000

5-7.

(Bohol Company)
Taxable income
P11,998,000
Future deductible amount:
Book depreciation in excess of tax depreciation
(430,000)
Nontaxable income:
Proceeds from life insurance policy upon death of officer
1,250,000
Pretax financial income
P12,818,000
5-8.

(Wall Services)
(a)

Schedule of reversal of the temporary differences
2010 140,000 x 32%
P 44,800

52


Chapter 5 - Income Taxes

400,000
( 140,000)

528,000
240,000
(b)

2011 320,000 x 34%
2012 240,000 x 36%
Total

108,800
86,400
P240,000

Pretax financial income
Add nondeductible expenses

P2,200,000

Less nontaxable revenues

Financial income subject to tax
Future taxable amounts
Taxable income
Tax rate
Income tax payable

P2,460,000
( 700,000)
P1,760,000
x 30 %
P

Deferred tax liability (see above)

P

Income Tax Expense – Current
Income Tax Payable

528,000

Income Tax Expense – Deferred
Deferred Tax Liability

240,000

528,000
240,000

(c)

Income from continuing operations before income tax
P2,200,000
Income tax expense:
Current
P528,000
Deferred
240,000
768,000
Net income
P1,432,000
5-9.

(Daniel Company)
(a)
2009
2010
2011
2012

Straight Line
500,000
500,000
500,000
500,000

12/31/2009
12/31/2010
12/31/2011
12/31/2012
Taxable income

Future taxable amount
Additional taxable
amount (reversal)
Pretax accounting
income

(b)

SYD
800,000
600,000
400,000
200,000

Carrying Amount
1,500,000
1,000,000
500,000
0
2009
800,000
300,000

2010
890,000
100,000

1,100,000

990,000

Difference
(300,000)
(100,000)
100,000
300,000
Tax Base
1,200,000
600,000
200,000
0

Difference
300,000
400,000
(300,000)
0

2011
1,200,000

2012
1,500,000

( 100,000)
1,100,000

(300,000)
1,200,000

Deferred Tax Liability (Asset) at the end of each year is as
follows:
2009
300,000 x 30%
P 90,000
2010
400,000 x 30%
120,000
2011
300,000 x 30%
( 90,000)

53


Chapter 5 - Income Taxes
2012
(c)

0

0

Journal entries to record current income tax:
2009
2010
Income Tax Expense-Current 240,000
267,000
Income Tax Payable
240,000

267,000
(30% x 800,000) (30% x 890,000)
2011
2012
Income Tax Expense-Current 360,000
450,000
Income Tax Payable
360,000
450,000
(30% x 1,200,000) (30% x
1,500,000)

Journal entries to record deferred income tax:
December 31, 2009:
Income Tax Expense-Deferred
Deferred Tax Liability
90,000
December 31, 2010:
Income Tax Expense – Deferred
Deferred Tax Liability
30,000

30,000

December 31, 2011:
Deferred Tax Liability
Income Tax Expense-Deferred (Benefit)
30,000
December 31, 2012:
Deferred Tax Liability

Income Tax Expense-Deferred (Benefit)
90,000
(d)
Income tax expense:
Current
Deferred (Benefit)
Total income tax
expense
(e)
Income before income
tax

90,000

30,000

90,000

2009

2010

2011

2012

P
240,000
90,00
0

P
330,000

P
267,000
30,00
0
P
297,000

P
360,000
( 30,00
0)
P
330,000

P
450,000
(90,00
0)
P
360,000

2009

P1,100,000

Less income tax

54

2010

P 990,000

2011

P1,100,00
0

2012

P1,200,00
0


Chapter 5 - Income Taxes
expense (see above)
Net income

330,00
0
P
770,000

297,00
0
P
693,000

330,00
0
P
770,000

360,00
0
P
840,000

5-10. (Jude Company)
(a)
Future taxable amount
Carrying amount of inventories > Tax Base
100,000
Carrying amount of building & equipment > Tax Base
1,800,000
P
1,900,000
Future Deductible Amount
Carrying amount of accounts receivable < Tax Base
P200,000
Carrying amount of warranty > Tax Base
800,000
Carrying amount of unearned rent > Tax Base
500,000
P
1,500,000
(b)

Income Tax Payable
P1,500,000
Deferred Tax Assets (1,500,000 x 30%)
450,000
Deferred Tax Liability (1,900,000 x 30%)
570,000
(c)

Income Tax Expense-Current
Income Tax Payable
Income Tax Expense-Deferred
Deferred Tax Asset
450,000 – 525,000
Deferred Tax Liability
Income Tax Benefit-Deferred

830,000

1,400,000 – 570,000
MULTIPLE CHOICE QUESTIONS
Theory
MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8

C
C
C
D
C
D
D
D

MC9
MC10
MC11
MC12
MC13
MC14
MC15

D
C
C
C
D
B
B

Problems
MC16
MC17
MC18

B
B
B

1,800,000 x 35% = 630,000
Excess of Book Value > Tax Basis of Equipment
2,000,000 x 30% + (1,000,000 x 35%) = 950,000

55

P

P
P

1,500,000
1,500,000
75,000
75,000
830,000


Chapter 5 - Income Taxes
MC19
MC20
MC21

D
C
B

MC22
MC23
MC24
MC25
MC26
MC27
MC28

C
B
D
C
D
C
D

MC29
MC30

C
B

MC31
MC32
MC33
MC34

B
D

C
D

MC35
MC36
MC37
MC38
MC39
MC40

D
C
C
D
D
B

MC41

A

MC42

A

10,000,000 x 30% = 3,000,000
(8,000,000 – 4,000,000) x 30% = 1,200,000
[(700,000 x 30%) + (1,400,000 x 35%)] – [(500,000 x 30%) + (1,000,000
x 35%)] = 700,000 – 500,000 = 200,000 (all non-current)
1,200,000 – 750,000 = 450,000; 450,000 x 35% = 157,500

1,500,000 x 30% = 450,000
6,000,000 x 30% = 1,800,000
9,000,000 x 30% = 2,700,000
42,000 / 30% = 140,000; 600,000 + 140,000 = 740,000
150,000 x 30% = 45,000
5,000,000 – 900,000 + 1,200,000 + 200,000 = 5,500,000;
5,500,000 x 30% = 1,650,000
200,000 – 40,000 = 160,000; 160,000 x 30% = 48,000
150,000 x 35% = 52,500; 150,000 x 35% = 52,500; 150,000 x 30% =
45,000
52,500 + 52,500 + 45,000 = 150,000
95,000 x 38% = 36,100
6,500,000 x 30% = 1,950,000 – 900,000 = 1,050,000
(2,600,000 – 1,400,000) x 38% = 456,000
The deferred tax asset cannot be offset against the deferred tax liability
because they will not reverse simultaneously.
(3,000,000 x 30%) – (5,000,000 x 30%) + (4,000,000 x 30%) = 600,000
See computation below
See computation below
172,500 / 30% = 575,000; 3,000,000 + 575,000 = 3,575,000
1,800,000 – 80,000 + 60,000 = 1,780,000; 1,780,000 x 30% = 534,000
2,000,000 – 100,000 – 120,000 + 180,000 = 1,960,000; 1,960,000 x 30%
= 588,000
5,000,000 – 500,000 + 200,000 – 4,000,000 + 1,800,000 = 2,500,000
2,500,000 x 30% = 750,000
(5,000,000 + 400,000 – 600,000) x 30% = 1,800,000

(see next page for items 36 and 37).
Items 36 and 37:
Pretax accounting income

Future deductible amount (accrued warranty cost)
Future taxable amount (accrual basis profit > cash basis profit
Operating loss carry-forward (for tax purposes)
Income tax expense
Increase in deferred tax liability 5,000,000 x 30%
Less: increase in deferred tax asset
(from accrued warranty cost) = 1,200,000 x 30%
(from operating loss carry forward)= 2,800,000 x 30% x
40%
Total deferred tax asset
Income tax expense

56

P 1,000,000
1,200,000
(5,000,000)
P 2,800,000

P 1,500,000
P

360,000
336,000

P
P

696,000
804,000