I need help with 10 accounting problems
Chapter 19 Income Tax Problem Set Note: For all questions unless otherwise noted use a tax rate of 20%. Also, assume realization of deferred tax assets, unless otherwise asked to determine #1. The Tom Company is having all sorts of problems preparing the journal entry for income taxes for the year ended December 31, 2019, its first full year of operations. Tom’s GAAP income statement for the year ended December 31, 2019 is as follows: Revenues $ 9,000,000 Cost of goods sold 1,000,000 Gross profit 8,000,000 Operating expenses: Depreciation expense 600,000 Share-based compensation expense 500,000 Research and development expense 2,000,000 Warranty expense 150,000 Bad debt expense 200,000 Litigation expense 700,000 Life insurance premiums 100,000 Impairment of building 450,000 Total operating expenses 4,700,000 Income from operations 3,300,000 Other income (expense): Interest income 400,000 Proceeds of life insurance policy 600,000 Interest expense (300,000) Total other expense, net 700,000 Income before income taxes $4,000,000 Tom provided you with the following information: 1. Included in interest expense is interest expense of $100,000 related to notes payable that is not required to be paid until the note matures in 2023. 2. Included in interest income is interest of Kenmore, NY municipal bonds of $150,000 3. Warranties paid during the year were 90,000 4. Capitalized interest during the year was $120,000, which is included in construction in process 5. Tax depreciation for the year ended December 31, 2019 is as follows: Land $0: buildings $600,000; and machinery $800,000 6. Tom acquired a business during the year which resulted in goodwill of $1,000,000, which is deductible over 15 years per the IRS rules using straight line based on the month acquired. The business was acquired on April 15, 2019 7. Tom had write-offs of its accounts receivable in the amount of $80,000 8. Tom paid commissions of $12,000 to its investment firm to acquire the Kenmore, NY municipal bonds 9. Tom uses the installment method for certain of its revenue transactions. Installment sales were $1,000,000 for financial reporting and $850,000 for income tax purposes. Requirements: A. Provide Jordan the journal entry Jordon should record to record its income tax expense for 2019 B. Provide Jordan the income tax proof to show its auditors. C. Indicate to Jordan the balance of income taxes payable and where that should be placed on the balance sheet D. Indicate to Jordan the amount balance of deferred taxes (balance sheet account) and its placement on the balance sheet E. Prepare for Jordan a schedule that can be placed in the footnotes to the financial statements that presents the components of the deferred tax assets and liabilities. #2 France, Inc. provided you with the following information (2019 was its first year): Taxable income for 2019 $500,000 Pre-tax income for 2019 $1,000,000 Taxable income for 2020 $700,000 Pre-tax income for 2020 $400,000 Taxable income for 2021 $600,000 Pre-tax income for 2021 $800,000 Taxable income for 2022 $200,000 Pre-tax income for 2022 $600,000 Taxable income for 2023 $100,000 Pre-tax income for 2023 $500,000 France wants to alert you to the fact it sold land on the installment basis in 2019 and a gain of $300,000 for GAAP in the pre-tax income figure above for 2019. For tax purposes, the transaction qualifies for use of the installment sales method. The cash from the sale was collected over a 5-year period in equal installments beginning with 2019. Assuming that the only item included in pre-tax income that gave rise to a permanent difference for each year were payments made for meals and enteraintment of $60,000 in 2019, $100,000 in 2020, $140,000 in 2021, $200,000 in 2022, and $80,000 in 2023. Provide the answers to the following: A. What is the deferred tax asset or liability that is presented on the balance at each balance sheet date. B. What are income taxes payable at each balance sheet date (assuming no payments are made) C. What is income tax expense for each year D. How much is in accounts receivable at each balance sheet date for GAAP. E. How much is the deferred gain for tax purposes at each balance sheet date. #3 Taco, Inc. began operaitons on January 1, 2019 and provided you with the following information Taxable income: 2019 2020 2021 Excess of revenues over expenses (exclude temporary differences) $2,600,000 $4,200,000 $8,500,000 Write-off of receivables 400,000 1,000,000 900,000 Tax depreciation 800,000 900,000 1,000,000 $1,400,000 2,300,000 6,600,000 Book income: 2019 2020 2021 Excess of revenues over expenses (exclude temporary differences) $2,000,000 $4,000,000 $8,000,000 Bad debt expense 900,000 1,000,000 600,000 Book depreciation 200,000 100,000 800,000 $900,000 2,900,000 6,600,000 A. Prepare the journal entry for its income tax expense for each year B. Prepare the income tax proof for each year C. Assuming no tax payments are made, how much are income taxes payable at each balance sheet date D. How much is the allowance for doubtful accounts at each balance sheet date E. How much is accumulated depreciation at each balance sheet date. F. How much is the deferred tax asset / liability amount at each balance sheet date. #4 The following is an excerpt from interprative guidance on accounting for income taxes under GAAP: Asset retirement obligations: For financial accounting purposes, the legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset are accounted for as an asset retirement obligation (ARO). Once the criteria for recognition are met, a company records a liability based on the fair value of the ARO. Upon initial recognition of a liability for an asset retirement obligation, an entity shall capitalize an asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount as the liability. The recognition of the ARO liability and the capitalization to fixed assets of the related asset retirement costs result in temporary differences that require the recognition of deferred taxes. The capitalized retirement costs increase a company’s book basis but do not increase the tax basis of the fixed assets, while the ARO liability is a book obligation without a corresponding tax basis. Discuss what the above paragraphs mean, if anything, with respect to the cumulative temporary differences, permanent differences, and deferred tax asset and deferred tax liabilities #5 Brady began business on January 1, 2021. Its pretax financial income for the first 2 years was as follows: 2021$2,240,000 20225,660,000 The following items caused the only differences between pretax financial income and taxable income. 1.In 2021, Brady collected $420,000 of rent; of this amount, $140,000 was earned in 2021; the other $280,000 will be earned equally over the 2022–2023 period. The full $420,000 was included in taxable income in 2021. 2.Brady pays $700,000 a year for life insurance on officers. 3.In 2022, the company terminated a top executive and agreed to $900,000 of severance pay. The amount will be paid $300,000 per year for 2022–2024. The 2022 payment was made. The $300,000 was expensed in 2022. For tax purposes, the severance pay is deductible as it is paid. 4. Brady has a stock appreciation rights program and recorded compensation expense under this program for financial reporting purposes of $500,000 in 2021 and reversed that amount in 2022 because the Company’s stock price came down dramatically, resulting in a credit balance of $50,000 in the compensation expense account in 2022. 5. Brady made tax payments of $400,000 in 2021 and $800,000 in 2022. A. Determine taxable income for 2021 and 2022. B. Prepare the journal entry to record income taxes for 2021 and 2022. C. Show how the deferred income taxes should be reported on the balance sheet at December 31, 2022. D. How much are income taxes payable at each balance sheet date. #6 Luck’s books showed pretax financial loss of $4,000,000 for the year ended December 31, 2021. In the computation of federal income taxes, the following data were considered: Proceeds from life insurance policy$1,560,000 Income from exempt municipal bonds$ 100,000 Depreciation deducted for tax purposes in excess of depreciation deducted for book purposes240,000 Federal estimated tax payments, 2021200,000 Enacted federal tax rate, 202120% What amount should Luck report as its income tax liability on its December 31, 2021 balance sheet? What are Luck’s deferred tax assets and liabilities at December 31, 2021 .#7 On January 1, 2021, Sanders purchased a machine for $2,250,000 which will be depreciated $225,000 per year for financial statement reporting purposes. For income tax reporting, Sanders elected to expense $250,000 and to use straight-line depreciation which will allow a cost recovery deduction of $200,000 for 2021. Assume a present and future enacted income tax rate of 20%. What amount should be added to Gore's deferred income tax liability for this temporary difference at December 31, 2021? #8 Biden’s 2021 income statement had pretax financial income of $500,000 in its first year of operations. Foltz uses an accelerated cost recovery method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions for depreciation over the five-year life of the assets acquired in 2021, and the enacted tax rates for 2021 to 2025 are as follows: Book Over (Under) TaxTax Rates 2021$(100,000)20% 2022(130,000)20% 2023(30,000)20% 2024120,00020% 2025140,00020% There are no other temporary differences. In Biden’s December 31, 2021 balance sheet, the noncurrent deferred income tax liability and the income taxes currently payable should be #9 Valuation Allowance Decisions We discussed on Wednesday that for companies that experience losses for financial reporting purposes, those losses generally translate into net operating loss (NOL) carryforwards for income tax purposes. As Companies have these losses, the deferred tax asset