ACCT.

3021 HW4 CH16a

Q 16 1
Explanation for this discrepancy is that company have a temporary difference of
4.4=($12.3 $7.9) million. So, what company`s board of directors can do is just
increase the deferred tax liability for $4.4 million. By doing that company is not
avoiding a income tax it just deferred.
Q 16 6
1. Life insurance proceeds if company receives life insurance upon the death of
an employee, it is income for financial accounting but never for taxable income.
2. Interest on municipal bonds municipal bonds are debt instruments and under
GAAP you have to add this income to net income.
3. Penalties and fines these expenses occur if business breaks civil, criminal or
statutory law and get arrested.
Q 16 9
First, we should mention that operating loss has to be recognized is in the year
when loss occurred. Operating loss carryback company can apply for previous
two year and get refund for these two years by reducing taxable income for
previous two years. Also company can carry and forward these losses up to 20
years by offsetting taxable income of those years.
Q 16 10
In a classified balance sheet, deferred tax assets and deferred tax liabilities are
classified as either current or noncurrent according to how the related assets or
liabilities are classified for financial reporting. (Sorry, I copied from the book p.
971)
Q 16 14
Intraperiod tax allocation refers to the distribution of income taxes to specific
items appearing in a financial statement. Intraperiod tax allocations occur within
a given accounting period and allow the user to understand the income tax
implications. The income statement will be divided into sections and will include
line items for the following:
Income.
Discontinued operations.
Extraordinary items.
Q 16 15
BE 16 1
In this exercise we have deferred tax liability of $1,200,00 = ($10,000,000
$7,000,000) x 40% and Income tax payable $2,800,000 = $7,000,000 x 40%.
Therefore journal entries would be:
JOURNAL ENTRIES
Income tax expense
Deferred tax
Income tax payable

DEBIT
$4,000,000

CREDIT
$1,200,000
$2,800,000

ACCT. 3021 HW4 CH16a

BE 16 3
In this exercise we have deferred tax asset of $800,000=($12,000,000
$10,000,000) x 40% and Income tax payable $4,800,000=$12,000,000 x 40%.
Therefore journal entries would be:
JOURNAL ENTRIES
Income tax expense
Deferred tax
Income tax payable

DEBIT
$4,000,000
$800,000

CREDIT
$4,800,000

BE 16 8
Deferred tax liability would be - $16,000,000 = $40,000,000 x 40%.
BE 16 15
Let`s clarify for ourselves that actual pretax Earnings of Southeast Airlines is
$55,000,000 and extraordinary gain of $10,000,000. As we know from the
exercise that company has tax rate of 40%. Therefore, we can calculate the
income tax expense which is $22,000,000 = $55,000,000 x 40%. Actual tax on
extraordinary gain is $4,000,000 = $10,000,000 x 40%. Now we can add up all
the taxes and find company`s total income tax obligation, which is $26,000,000
= $22,000,000 + $4,000,000.
CPA 1. LO 1
Scott Corp. in its 2013 balance sheet for differed income tax liability will record
$3,000 = $12,000 x 25%.
Answer is: c
CPA 7. LO 10
Reporting an extraordinary item in the income statement, net of direct tax
effects, because extraordinary item needs intraperiod allocation of income tax.
Answer is: a
CMA 1. LO 2
Advance rental receipts accounted for on the accrual basis for financial statement
purposes and on a cash basis for tax purposes.
Answer is: c
Analysis Case 16 1: LO 1 to 8
R 1.
Temporary Differences Deferred taxes arise as a result of temporary
difference between income tax expense and income tax payable. A temporary
difference is the difference between book value of an asset or liability and the tax
basis of the same asset or liability. If the income tax expense in the income

ACCT. 3021 HW4 CH16a

statement is larger than the current income tax liability the difference is called a
deferred tax liability. If the income tax expense in the income statement is
smaller than the current income tax liability the difference is called a deferred tax
asset.
Permanent differences occur as a result of differences between GAAP and
income tax law. Income or expenses reported on the income statement are never
reported on the tax return. Permanent differences are never reverse. Municipal
bonds are one of the examples of permanent difference.
R 2.
Intraperiod tax allocation allocates total income tax expense or benefit of an
entity for a period to different components of comprehensive income and
shareholders` equity. This includes allocating income tax expense or benefit for
the year to:
a. Continuing operations.
b. Discontinued operations.
c. Extraordinary items.
Interperiod tax allocation when an income tax discrepancy conflicts with an
accounting system following GAAP, an adjustment must be made to reflect a
change in policy. For example, the IRS determines as asset`s worth based on the
time limit of 7 years, whereas the GAAP determines asset`s worth as long as it is
being used. An accountant will make the change in a footnote to the deference in
policy.
R 3.
Deferred tax liabilities are reported into a net current and net noncurrent amount
combined with deferred tax assets. For the financial reporting deferred tax
liability or deferred tax assets classified as current or noncurrent.
Analysis Case 16 7: LO 1,2,3,8
R 1.
http://www.irs.gov/Forms-&-Pubs
http://www.treasury.gov/Pages/default.aspx
R 2.
I download it and I will attach it.

ACCT. 3021 HW4 CH16a

R 3.
Specific deductions:

Also all of these deductions might not be included among expenses in the income
statement.
R 4.
If company previous two years reported net operating loss and did not carry back
to the future years and did not deducted as an operating loss carryforward, then
company will record net operating loss deduction. As I remember from the
Income Taxation class that all deductions reduce taxable income amount.
R 5.
In the income statement temporary differences can be created when amounts for
several deductions are different from the expenses in the income statement, and
what is significant that these differences should be reverse to each other.
Analysis Case 16 8: LO 1,2,3,7,8
R 1.
Because deferred tax assets and deferred tax liabilities can be classified as
current or noncurrent, it is all depends on how other related assets or liabilities

ACCT. 3021 HW4 CH16a

were classified for reporting. Google in its balance sheet reports deferred income
taxes as current and noncurrent asset.
R 2.
Difference of these two amounts in Note 15 from the amount of balance sheet
explained in R 1. Therefore, $1,221 and $405 were classified as current and
noncurrent assets and liabilities.
R 3.
Usually companies create a valuation allowance for deferred tax asset if there is a
more than 50% probability that company will not realize some portion of the
asset. From Google`s deferred tax assets we can see that Google recorded its
valuation allowance for 2010.

ACCT. 3021 HW4 CH16a

ACCT. 3021 HW4 CH16a

ACCT. 3021 HW4 CH16a

ACCT. 3021 HW4 CH16a