ACC 557 Homework Week 2 –
Chapter 19 Problem 1
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Problem 1:
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California Surplus Inc. qualifies
to use the installment-sales method for tax purposes and sold an investment
on an installment basis. The total gain of $75000 was reported for financial
reporting purposes in the period of sale. The installment period is 3 years;
one-third of the sale price is collected in 2014 and the rest in 2015 and
2016. The tax rate was 35% in 2014, 30% in 2015, and 30% in 2016. The enacted
tax rates of 2015 and 2016 are not known until 2015. The accounting and
tax data are shown below.
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Financial Accounting
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Tax Return
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2014 (35% tax rate)
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Income before temporary difference
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$
175,000
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$
175,000
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Temporary difference
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$
75,000
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$
25,000
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Income
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$
250,000
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$
200,000
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2015 (30% tax rate)
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Income before temporary difference
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$
200,000
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$
200,000
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Temporary difference
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$
–
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$
25,000
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Income
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$
200,000
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$
225,000
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2016 (30% tax rate)
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Income before temporary difference
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$
180,000
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$
180,000
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Temporary difference
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$
–
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$
25,000
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Income
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$
180,000
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$
205,000
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Required:
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1)
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Prepare the journal entries to
record the income tax expense, deferred income taxes, and the income taxes
payable for 2014, 2015, and 2016. No deferred income taxes existed at the
beginning of 2012.
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2)
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Explain how the deferred taxes
will appear on the balance sheet at the end of each year. (Assume Installment
Accounts Receivable is classified as a current asset.)
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3)
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Show the income tax expense
section of the income statement for each year, beginning with “Income before
income taxes.”
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Problem 2:
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Trenton Co. incurred a net
operating loss of $850,000 in 2014. Combined income of 2012 and 2013 was
$650,000. The tax rate for all years is 30%. Trenton elects the carry back
option.
Required:
a.
Prepare the journal entries to record the benefit of loss carry back and loss
carry forward option.
b.
Assuming that it is more likely than not that the entire net operating loss
carry forward will not be realized in future years,prepare all the journal
entries necessary at the end of 2014.
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