1- ABC. started business in January 2013, and purchased a machine for $100,000 (four-year expected useful life with no salvage value). ABC uses straight line depreciation for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2013, 30% in 2014 and 20% in 2015. Pretax accounting income for 2013 was $600,000, which includes interest revenue of $50,000 from municipal bonds. The enacted tax rate is 40%. There are no other differences between accounting income and taxable income. Make the journal entry to record income taxes in 2013 ?
A -At the end of 2012, B Co. had a deferred tax asset account with a balance of $160 million attributable to a temporary book-tax difference of $400 million in a liability for estimated expenses. At the end of 2013, the temporary difference is $240 million. There were no other temporary differences. Taxable income for 2013 is $800 million and the tax rate is 40%. B Co has a valuation allowance of $40 million for the deferred tax asset at the beginning of 2013. Make the journal entry(s) to record income taxes for 2013 assuming it is "more likely than not" that the deferred tax asset will be realized ?
B - Assume the same facts as above . Make the journal entry(s) to record B Co income taxes for 2013 assuming it is "more likely than not" that one-half of the deferred tax asset will not ultimately be realized.
3-Z Corp. began operations in 2010. In 2013, it reported a pretax operating loss of $700,000 for financial reporting purposes. Contributing to the loss were (a) a tax reporting penalty of $60,000 assessed by the Internal Revenue Service and paid in 2013 and (b) an estimated loss of $80,000 from accruing a loss contingency. The loss will be tax deductible when paid in 2014. The enacted tax rate is 40% in 2013 and future years. There were no other permanent or temporary differences other than those listed above. Z Corp taxable income and enacted tax rates in its first three years were:
2010 275,000 Tax rate 38%
2011 200,000 Tax rate 35%
2012 150,000 Tax rate 38%
1. Make the journal entry to record taxes in 2013 assuming Z Corp elects the carryback option.
2. Show the lower portion of the 2013 income statement that reports the income tax benefit of the operating loss.
3. Make the journal entry to record income taxes in 2014 assuming pretax accounting income is $300,000.
Debit Income tax expense $220,000
Credit Income tax payable* $210,000
Credit Deferred tax $10,000
*This account can also be cash if the company pays its income tax liability immediately.
Accounting depreciation = $100,000/4 years = $25,000
Tax depreciation = $100,000 x 50% = $50,000
Difference in depreciation = $25,000
Income tax expense = (Pretax accounting income - Interest revenue) x Enacted tax rate = ($600,000 - $50,000) x 40% = $220,000
Income tax payable = (Pretax accounting income - Interest revenue - Difference in depreciation) x Enacted tax rate = ($600,000 - $50,000 - $25,000) x 40% = $210,000
Debit: Income tax expense $320 million
Credit: Deferred tax asset $120 ...
Income taxes journal entries are examined for a business started in January 2013.