1. Identify how each security should be accounted for (Trading, Available-for-Sale, Held-to-Maturity or Equity Method).
2. At what amount would you report each security on the Balance Sheet as of December 31, 2013?
3. What is the amount of unrealized holding gain or loss for each security (if applicable) and in which account (Equity or Income) would you record the unrealized holding gain/loss for each applicable one?
4. Prepare the journal entries for the Equity Method transaction(s).
5. Prepare the journal entries to record any realized gains or losses on the sale of securities. Ignore any reclassification adjustments, if applicable.

Problem - Deferred Taxes

Kramer Corporation began operations during 2012. Other information provided by Kramer for 2012 and 2013 are as follows:

2012:

Depreciation costs are written off for income tax purposes on a different basis from that used for accounting purposes, resulting in a $60,000 additional expense for tax purposes as compared to accounting purposes that will reverses at an equal amount per year for each of the next three years.

2013:

1. The depreciation difference from 2012 reverses as expected.
2. Kramer collected $45,000 for rent under operating leases that will be earned equally during 2013, 2014, and 2015.
3. Penalties incurred amounted to $3,000, but they will not be paid until 2014.
4. Entertainment expenses reported on the income statement totaled $4,000. The amount allowed for tax purposes is 50 percent.
5. Kramer accrued interest revenue of $5,000 on municipal bonds. Interest will be received during 2014.
6. The enacted tax rates are 26 percent for 2012, 30 percent for 2013, 35 percent for 2014, and 32 percent for 2015 and thereafter.

Instructions:

1. Determine the amounts that will be reported on the December 31, 2013, balance sheet as deferred tax assets or liabilities for each item given.
2. Which items will produce permanent differences? On which side (books or tax) will these be reflected?