Deferred Tax Liability
-
Upload
yuli-avery -
Category
Documents
-
view
27 -
download
2
description
Transcript of Deferred Tax Liability
16-1
DeferredTax Liability
Chapter 16Illustrated Solution: Problem 16-28Illustrated Solution: Problem 16-28
16-2
Timpany Motors, Inc.Timpany Motors, Inc.
Income and expense recognition rules differ between financial accounting standards (GAAP) and Internal Revenue Code. This typically causes corporations to report one “net income” to stockholders and a different “net income” to the IRS.
16-3
Timpany Motors, Inc.Timpany Motors, Inc.
Income and expense recognition rules differ between financial accounting standards (GAAP) and Internal Revenue Code. This typically causes corporations to report one “net income” to stockholders and a different “net income” to the IRS.
Many of these differences arise from expense or revenue items that will eventually be recognized for both financial reporting and tax purposes. However, financial reporting and tax reporting will recognize these items in different reporting periods which may cause temporary timing differences in reported net income.
16-4
Timpany Motors, Inc.
Part 1 — Income Taxes PayablePart 1 — Income Taxes Payable
Pretax financial income……………………………. $75,000
16-5
Timpany Motors, Inc.
Pretax financial income……………………………. $75,000Nondeductible expenses………………………….. 30,000
Part 1 — Income Taxes PayablePart 1 — Income Taxes Payable
16-6
Timpany Motors, Inc.
Pretax financial income……………………………. $75,000Nondeductible expenses………………………….. 30,000Nontaxable revenues……………………………….
(12,500)
Part 1 — Income Taxes PayablePart 1 — Income Taxes Payable
16-7
Timpany Motors, Inc.
Pretax financial income……………………………. $75,000Nondeductible expenses………………………….. 30,000Nontaxable revenues……………………………….
(12,500)Gross profit on installment sales…………………..
(28,000)
Part 1 — Income Taxes PayablePart 1 — Income Taxes Payable
16-8
Timpany Motors, Inc.
Pretax financial income……………………………. $75,000Nondeductible expenses………………………….. 30,000Nontaxable revenues……………………………….
(12,500)Gross profit on installment sales…………………..
(28,000)Taxable income…………………………………….. $64,500
Part 1 — Income Taxes PayablePart 1 — Income Taxes Payable
16-9
Income Tax Expense—Current…………………… 25,800
Income Taxes Payable………………………… 25,800
($64,500 x .40)
Timpany Motors, Inc.
Part 1 — Journal EntryPart 1 — Journal Entry
Pretax financial income……………………………. $75,000Nondeductible expenses………………………….. 30,000Nontaxable revenues……………………………….
(12,500)Gross profit on installment sales…………………..
(28,000)Taxable income…………………………………….. $64,500
16-10
YearEnacted
Rate
2003 36%
2004 34%
2005 30%
Part 1 — Deferred TaxesPart 1 — Deferred Taxes
16-11
YearEnacted
RateTaxable Amount
2003 36% $ 6,000
2004 34% 13,500
2005 30% 8,500
$28,000
Part 1 — Deferred TaxesPart 1 — Deferred Taxes
16-12
YearEnacted
RateTaxable Amount
Liability Valuation
2003 36% $ 6,000 $2,160
2004 34% 13,500 4,590
2005 30% 8,500 2,550
$28,000 $9,300
Part 1 — Deferred TaxesPart 1 — Deferred Taxes
16-13
YearEnacted
RateTaxable Amount
Liability Valuation
2003 36% $ 6,000 $2,160
2004 34% 13,500 4,590
2005 30% 8,500 2,550
$28,000 $9,300
The receivable from the installment sale would be classified according to the time of its expected collection. (At December 31, 2002, $6,000 would be classified as current and $22,000 as noncurrent.) The classification of the deferred tax liability will mirror this split.
Part 1 — Deferred TaxesPart 1 — Deferred Taxes
16-14
Income Tax Expense—Deferred………………….. 9,300
Deferred Tax Liability—Current………………… 2,160
Deferred Tax Liability—Noncurrent……………. 7,140
Timpany Motors, Inc.
Part 1 — Deferred TaxesPart 1 — Deferred Taxes
16-15
Income from continuing operations before income taxes…………………………………….. $75,000Income taxes on continuing operations:
Current provision………………………………. Deferred provision………………………………
Net income…………………………………………..
Timpany Motors, Inc.Partial Income Statement
For the Year Ended December 31, 2002
Part 2 — Partial Income StatementPart 2 — Partial Income Statement
16-16
Income from continuing operations before income taxes…………………………………….. $75,000Income taxes on continuing operations:
Current provision………………………………. $25,800Deferred provision……………………………… 9,300 35,100
Net income………………………………………….. $39,900
Timpany Motors, Inc.Partial Income Statement
For the Year Ended December 31, 2002
Part 2 — Partial Income StatementPart 2 — Partial Income Statement
16-17
End of ProblemEnd of Problem