Problem 16-9

Requirement 1
($ in millions)

Temporary Differences Allowance for uncollectible accounts Prepaid insurance Prepaid rent expense (operating lease) Buildings and equipment (net) Liability subscriptions received Liability postretirement benefits Investment in securities available for sale Totals Tax rate Deferred tax liability Deferred tax asset Requirement 2

Future Taxable Amounts $ 20 6 80

Future Deductible Amounts $ (2)

(14) (594) 4 $110 40% $ 44 $(610) 40% $(244)

Deferred tax Deferred tax liability asset

Ending balances (balances currently needed): Less: beginning balances: Change needed to achieve desired balances

$ 44
(40)

$244 (250) $ (6)

$ 4

Requirement 3 Taxable income times tax rate equals income tax payable $120 million x 40% = $48 million

Problem 16-9 (concluded) Requirement 4 Income tax expense (to balance) Deferred tax asset (determined above) Deferred tax liability (determined above) Income tax payable (determined above) Requirement 5
($ in millions) Classification current-C noncurrent-NC Future Taxable (Deductible) Amounts Deferred Tax (Asset) Liability C NC

58 6 4 48

Related Balance Sheet Account

Tax Rate x 40% x 40% x 40% x 40% x 40% x 40% x 40%

Allowanceuncollectible accounts Prepaid insurance Prepaid rent Buildings and equipment Liabilitysubscriptions received Liabilitypostretirement benefits Unrealized gain on investments1 Net current liability (asset) Net noncurrent liability (asset) Current Liabilities: Deferred taxes Other assets: Deferred taxes

C C C NC C NC NC

(2) 20 6 80 (14) (594) 4

(0.8) 8.0 2.4 32.0 (5.6) (237.6) 1.6

___ __

4.0 (204.0) $ 4 $204

RECONCILIATION [NOT REQUIRED]: Net current liability $ (4) Net noncurrent asset 204 $200 Total amounts from requirement 1: Deferred tax liability $ (44) Deferred tax asset 244
1 If management intends to hold the investments for less than a year, these would be current rather than

noncurrent.

$200

Problem 16-10
Requirement 1
($ in millions) Prior Years 2009 2010 Current Year 2011 Future Deductible Amounts [total]

Accounting loss Permanent difference: Fine paid Temporary differences: Loss contingency Taxable loss Loss carryback Loss carryforward

(135) 5 10 (120) 105 15 0 (10)

(75)

(30)

(15) (25) 40% (10)

Enacted tax rate Tax payable (refundable) Deferred tax asset

40% 40% (30) (12)

40% 0

Deferred tax asset: Ending balance (balance currently needed) Less: beginning balance Change needed to achieve desired balance Journal entry at the end of 2011 Receivable income tax refund ($30 + 12) Deferred tax asset (determined above) Income tax benefit (to balance) Requirement 2
($ in millions)

$ 10 (0) $10 42 10 52

Operating loss before income taxes Less: Income tax benefit: Tax refund from loss carryback Future tax benefits 10 52

$135 $42

Net operating loss

$ 83