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Trinity co. reported taxable income in 2008 of $120 million. At December 31, 2008, reported amount of a few assets and liabilities in a financial statements differed from their tax basis as given below:

Assets                                                      Carrying Amount     Tax Basis
Current            
Accounts Receivable                                     $ 10 million          $ 12 million
Prepaid insurance                                            20 million              $0
Prepaid rent insurance                                       6 million              $0
Non current            
Buildings and equipment (net)                           360 million          280 million
Liabilities            
Current            
Liability- subscriptions received                          14 million              0
Long-term            
Liability- postretirement benefits                       594 million              0
Shareholders’ Equity            
Unrealized gain from recording investments             4 million             0

Available for sale at fair market value

Total deferred tax asset and deferred tax liability amounts at January 1, 2008, were $250 million and $40 million, respectively. Enacted tax rate is 40 % each year.

problems:

1) Find out the total deferred tax asset and deferred tax liability amounts at December 31, 2008.

2) Find out the increase (decrease) in a deferred tax asset and deferred tax liability accounts at December 31, 2008.

3) Find out the income tax payable currently for the year ended December 31, 2008.

4) Create the journal entry to record income taxes for 2008.

5) Illustrate how deferred tax amounts must be classified and reported in the 2008 balance sheet.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M99886

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