Please help me solving this accounting problom Permanent Differences, Tempora Ta
ID: 2538598 • Letter: P
Question
Please help me solving this accounting problom
Permanent Differences, Tempora Tax Rate to Effective Tax Rate, Classification of Deferred Tax Accounts, Disclosure. Simply Syrup In porated, a maple syru income and taxable income during its first full year of operations: ry Tax Differences, Change in Tax Rates, Reconciliation of Statutory p maker, reported the following events causing differences between pretax accounting purchased equipment costing $440,000 (with a useful life of four years and no P17-13. In 2013, Simply Syrup salvage value) that it will depreciate on a straight-line basis for financial reporting purposes. Simply Syrup will use an accelerated method for tax purposes and depreciate $200,000 in the first year and $80,000 in the following three years (i.e, 2014 through 2016) On December 31, 2013, Simply Syrup collected $70,000 for future delivery of 3,500 cases of its Maple Light Syrup. It is schduled to deliver 2,100 cases in 2014 and the remainder in 2015 i. ili Simply Syrup invésts in yrup invésts in US.government securities to earn tax free interest. In 2013, the company reported securiti $8,000 of interest income from this investment on its income statement. ly Syrup makes a promise to its customers: "We will give you a full refund if you are hospitalized after eating our syrup on your pancakes." will cost them 10% of their sales. Sales of syrup in 2013 amounted to $100,000 and the firm re accrued warranty expense of $10,000. The warranties expire in one year. iv. Simp Based on past experience, the company estimates that this warranty corded an v. In 2013, Simply Syrup insured the life of its president, Hill L Minimon. The premiums paid amounted to $5,000. The company is the beneficiary. Simply Syrup has a 40% taxrate and reported income before tax of $500,000 under GAAP for 2013 Required » a. Compute income tax payable in 2013 b. c. Determine income tax expense for 2013 and prepare the journal entry or entries necessary to record the Determine the deferred tax asset and liability at end of 2013 tax provision for the year. Record deferred tax assets and deferred tax liabilities separately d. Classify the net deferred tax asset or deferred tax liability on the 2013 balance sheet as-currentor-noneur- axha*rent. Justify the classifieation-used. i. statuto ral rateof-40% in both percent ge Prepare the entry necessary in 2013 base ize one-half of the deferred tax asset over the reversal peri f. d on your obtaining information that Simply Syrup will not real-Explanation / Answer
a) Income tax liability for 2013 would be income tax expense of 1,86,800+Net deferred tax liability of 6,000
=186,800+6,000
=192,800
b) Deferred tax asset at the end of 2013 is $32,000 and deferred tax liability at the end of 2013 is $36,000.
c) Reported profit before tax 500,000
Less: Depreciation increase for tax purpose 90,000
Add: Income received in advance 70,000
Less: Interest on tax free securities 8,000
Less: Prepaid premium 5,000
Therefore, Profit before tax for tax books 4,67,000
The tax expense for 2013 would be 4,67,000*40%=1,86,800
Journal entries would be:
1. Profit or loss a/c Dr 36,000
To Deferred tax Liability (DTL) a/c Cr 36,000
(excess depeciation for tax of 90,000*.40)
2. Deferred tax asset (DTA) a/c Dr 4,000
To P & L a/c 4,000
(Accrued warranty expense 10000*.40)
3. P& L a/c Dr 2,000
To DTL a/c 2,000
(Prepaid premium of 5000*0.40)
4. DTA a/c Dr 28,000
To P& L a/c 28,000
(Advance income received of 70000*0.40)
5. P&L a/c Dr 186,800
To Provision for tax a/c 186,800
(Being Profit before tax as per tax books of 4,67,000*0.40)
d. Deferred taxes should be presented in the balance sheet seperately from the current assets and laibilities. Deferred tax asset should be disclosed after the head investments and deferred tax liability has to be disclosed after unsecured loans.