At the end of its first year of operations on December 31, 2014, the Brandon Company reported taxable income of $100,000 and had a pretax financial loss of $60,000.
Differences between taxable income and pretax financial income included interest revenue received from municipal obligations of $20,000 and warranty expense accruals of $180,000.
Warranty expenses of $90,000 are expected to be paid in 2015 and $110,000 in 2016.
The enacted income tax rates for 2014, 2015, and 2016 are 30%, 35%, and 40%, respectively.
The journal entry to record income tax expense on December 31, 2014, would be
a.
Deferred Tax Asset 105,500
Income Taxes Payable 30,000
Income Tax Benefit from Operating Loss Carryforward 75,500
b.
Deferred Tax Asset 30,000
Income Taxes Payable 30,000
c.
Deferred Tax Asset 75,500
Income Taxes Payable 30,000
Income Tax Benefits from Operating Loss Carryforward 45,500
d.
Income Tax Expense 30,000
Income Taxes Payable 30,000
2.
On December 31, 2013, Fredericksburg, Inc. had no temporary differences that created deferred income taxes. On January 2, 2014, a new machine was purchased for $30,000. Straight-line depreciation over a four-year life (no residual value) was used for financial accounting. Depreciation expense for tax purposes was $11,000 in 2014, $9,000 in 2015, $6,000 in 2016, and $4,000 in 2013. In each year, the income tax rate was 20% and Fredericksburg had no other items that created differences between pretax financial income and taxable income. Fredericksburg reported the following pretax financial income for 2014 through 2017:
2014
$50,000
2015
40,000
2016
30,000
2017
60,000
Refer to Exhibit 18-1. The entry to record income taxes on December 31, 2015, would include a:
a.
credit to Income Taxes Payable for $8,000.
b.
debit to Deferred Tax Liability for $300.
c.
credit to Deferred Tax Liability for $300.
d.
debit to Income Tax Expense for $7,700.
3.
On December 31, 2013, Fredericksburg, Inc. had no temporary differences that created deferred income taxes. On January 2, 2014, a new machine was purchased for $30,000. Straight-line depreciation over a four-year life (no residual value) was used for financial accounting. Depreciation expense for tax purposes was $11,000 in 2014, $9,000 in 2015, $6,000 in 2016, and $4,000 in 2013. In each year, the income tax rate was 20% and Fredericksburg had no other items that created differences between pretax financial income and taxable income. Fredericksburg reported the following pretax financial income for 2014 through 2017:
2014
$50,000
2015
40,000
2016
30,000
2017
60,000
Refer to Exhibit 18-1. The entry to record income taxes on December 31, 2015, would include a:
a.
credit to Income Taxes Payable for $8,000.
b.
debit to Deferred Tax Liability for $300.
c.
credit to Deferred Tax Liability for $300.
d.
debit to Income Tax Expense for $7,700.
4.
On December 31, 2013, Fredericksburg, Inc. had no temporary differences that created deferred income taxes. On January 2, 2014, a new machine was purchased for $30,000. Straight-line depreciation over a four-year life (no residual value) was used for financial accounting. Depreciation expense for tax purposes was $11,000 in 2014, $9,000 in 2015, $6,000 in 2016, and $4,000 in 2013. In each year, the income tax rate was 20% and Fredericksburg had no other items that created differences between pretax financial income and taxable income. Fredericksburg reported the following pretax financial income for 2014 through 2017:
2014
$50,000
2015
40,000
2016
30,000
2017
60,000
Refer to Exhibit 18-1. The entry to record income taxes on December 31, 2015, would include a:
a.
credit to Income Taxes Payable for $8,000.
b.
debit to Deferred Tax Liability for $300.
c.
credit to Deferred Tax Liability for $300.
d.
debit to Income Tax Expense for $7,700.
5.
The Wyatt Company reports the following for both pretax financial and taxable income:
Enacted
Year
Income (Loss)
Tax Rates
2014
$ 40,000
30%
2015
60,000
35%
2016
80,000
30%
2017
(200,000)
30%
Wyatt uses the carryback provision for net operating losses when possible. Congress has enacted a tax rate for 2018 and future years of 40%. The entry on December 31, 2017, to record income tax expense would include a:
a.
credit to Income Tax Benefit from Operating Losses for $45,000.
b.
debit to Income Tax Refund Receivable for $24,000.
c.
debit to Income Tax Refund Receivable for $45,000.
d.
credit to Income Tax Expense for $45,000.
6.
The Wyatt Company reports the following for both pretax financial and taxable income:
Enacted
Year
Income (Loss)
Tax Rates
2014
$ 40,000
30%
2015
60,000
35%
2016
80,000
30%
2017
(200,000)
30%
Wyatt uses the carryback provision for net operating losses when possible. Congress has enacted a tax rate for 2018 and future years of 40%. The entry on December 31, 2017, to record income tax expense would include a:
a.
credit to Income Tax Benefit from Operating Losses for $45,000.
b.
debit to Income Tax Refund Receivable for $24,000.
c.
debit to Income Tax Refund Receivable for $45,000.
d.
credit to Income Tax Expense for $45,000.
7.
On December 31, 2013, Fredericksburg, Inc. had no temporary differences that created deferred income taxes. On January 2, 2014, a new machine was purchased for $30,000. Straight-line depreciation over a four-year life (no residual value) was used for financial accounting. Depreciation expense for tax purposes was $11,000 in 2014, $9,000 in 2015, $6,000 in 2016, and $4,000 in 2013. In each year, the income tax rate was 20% and Fredericksburg had no other items that created differences between pretax financial income and taxable income. Fredericksburg reported the following pretax financial income for 2014 through 2017:
2014
$50,000
2015
40,000
2016
30,000
2017
60,000
Refer to Exhibit 18-1. The entry to record income taxes on December 31, 2016, would include a:
a.
debit to Deferred Tax Liability for $300.
b.
.debit to Income Tax Expense for $8,000.
c.
debit to Deferred Tax Asset for $300.
d.
credit to Income Taxes Payable for $7,700.
8.
In 2014, Waterford Corporation reported pretax financial income of $400,000.
Included in that pretax financial income was:
$150,000 of nontaxable life insurance proceeds received as a result of the death of an officer;
$120,000 of warranty expenses accrued but unpaid as of December 31, 2014; and
$10,000 of bad debts estimated to be uncollectible (but not written off as of December 31, 2014).
Assuming that no income taxes were previously paid during the year and an income tax rate of 30%, the amount of income taxes payable on December 31, 2014, would be:
12
a.
$114,000
b.
$108,000
c.
$42,000
d.
$126,000
