Chapter 15, ACCOUNTING FOR INCOME TAXES Video Solutions, Intermediate Accounting Principles and Analysis

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Problem 1

Explain the difference between pretax financial income and taxable income.

James Kiss

Numerade Educator

Problem 2

What are the two objectives of accounting for income taxes?

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Interest on municipal bonds is referred to as a permanent difference when determining the proper amount to report for deferred taxes. Explain the meaning of permanent differences, and give two other examples.

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Problem 4

Explain the meaning of a temporary difference as it relates to deferred tax computations, and give three examples.

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Problem 5

Differentiate between an originating temporary difference and a reversing difference.

Alice .

Numerade Educator

Problem 6

The book basis of depreciable assets for Getty Co. is $$\$ 900,000$$, and the tax basis is $$\$ 700,000$$ at the end of 2008 . The enacted tax rate is $34 \%$ for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2008 .

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Problem 7

Borg Inc. has a deferred tax liability of $$\$ 68,000$$ at the beginning of 2008. At the end of 2008 , it reports accounts receivable on the books at $$\$ 80,000$$ and the tax basis at zero (its only temporary difference). If the enacted tax rate is $34 \%$ for all periods, and income tax payable for the period is $$\$ 230,000$$, determine the amount of total income tax expense to report for 2008 .

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Problem 8

What is the difference between a future taxable amount and a future deductible amount? When is it appropriate to record a valuation account for a deferred tax asset?

James Kiss

Numerade Educator

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Problem 9

Pretax financial income for Mott Inc. is $$\$ 300,000$$, and its taxable income is $$\$ 100,000$$ for 2008 . Its only temporary difference at the end of the period relates to a $$\$ 90,000$$ difference due to excess depreciation for tax purposes. If the tax rate is $40 \%$ for all periods, compute the amount of income tax expense to report in 2008. No deferred income taxes existed at the beginning of the year.

Breanna Ollech

Numerade Educator

Problem 10

How are deferred tax assets and deferred tax liabilities reported on the balance sheet?

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Problem 11

Describe the procedures involved in segregating various deferred tax amounts into current and noncurrent categories.

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Problem 12

How is it determined whether deferred tax amounts are considered to be "related" to specific asset or liability amounts?

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Problem 13

At the end of the year, North Carolina Co. has pretax financial income of $$\$ 550,000$$. Included in the $$\$ 550,000$$ is $$\$ 70,000$$ interest income on municipal bonds, $$\$ 30,000$$ fine for dumping hazardous waste, and depreciation of $$\$ 60,000$$. Depreciation for tax purposes is $$\$ 45,000$$. Compute income taxes payable, assuming the tax rate is $30 \%$ for all periods.

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Problem 14

Raleigh Co. has one temporary difference at the beginning of 2008 of $$\$ 500,000$$. The deferred tax liability established for this amount is $$\$ 150,000$$, based on a tax rate of $30 \%$. The temporary difference will provide the following taxable amounts: $$\$ 100,000$$ in 2009; $$\$ 200,000$$ in 2010 , and $$\$ 200,000$$ in 2011. If a new tax rate for 2011 of $25 \%$ is enacted into law at the end of 2008, what is the journal entry necessary in 2008 (if any) to adjust deferred taxes?

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