Question 1 - A company reports pretax accounting income of $12 million, but because of a single temporary difference, taxable income is only S10 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%.

Prepare the appropriate journal entry to record income taxes.

Question 2 - Kara Fashions uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. Three years after its purchase, one of Kara's buildings has a book value of $370.000 and a tax basis of $245.000. There were no other temporary differences and no permanent differences. Taxable income was $8 million and Kara's tax rate is 35%.

1. What is the deferred tax liability to be reported in the balance sheet?

2. Assume that the deferred tax liability balance was $34,850 the previous year. Prepare the appropriate journal entry to record income taxes this year.

Question 3 - At the end of the year, the deferred tax asset account had a balance of $21.6 million attributable to a cumulative temporary difference of $54 million in a liability for estimated expenses. Taxable income is $71.0 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%.

Prepare the journal entry(s) to record income taxes assuming it is more likely than not that one-fourth of the deferred tax asset will not ultimately be realized.

Question 4 - Differences between financial statement and taxable income were as follows:

The cumulative temporary difference to date is $50 million (also the future taxable amount). The enacted tax rate is 40%. What is deferred tax asset or liability to be reported in the balance sheet?

Question 5 - Alvis Corporation reports pretax accounting income of $540,000, but due to a single temporary difference, taxable income is only $355,000. At the beginning of the year, no temporary differences existed.

Required:

1. Assume a tax rate of 40%, what will be Alvis's net income?

2. What will Alvis report in the balance sheet pertaining to income taxes?

Question 6 - Lance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when the cost is incurred. At December 31, 2016. Lance has a warranty liability of $2 million and taxable income of $75 million. At December 31, 2015, Lance reported a deferred tax asset of $835,000 related to this difference in reporting warranties, its only temporary difference. The enacted tax rate is 40% each year.

Required: Prepare the appropriate journal entry to record Lance's income tax provision for 2016.

Question 7 - The information that follows pertains to Esther Food Products:

a. At December 31, 2016, temporary differences were associated with the following future taxable (deductible) amounts:

b. No temporary differences existed at the beginning of 2016.

c. Pretax accounting income was $95,000 and taxable income was $21,000 for the year ended December 31, 2016.

d. The tax rate is 40%.

Required: Complete the following table given below and prepare the appropriate journal entry to record income taxes for 2016.

Question 8 - Wynn Sheet Metal reported an operating loss of $19800 for financial reporting and tax purposes in 2016. The enacted tax rate is 40%. Taxable income, tax rates, and income taxes paid in Wynn's first four years of operation were as follows:

Required:

1. Complete the following table given below and prepare the journal entry to recognize the income tax benefit of the operating loss. Wynn elects the carryback option.

Question 9 - Times-Roman Publishing Company reports the following amounts in its first three years of operation:

The difference between pretax accounting income and taxable income is due to subscription revenue for one-year magazine subscriptions being reported for tax purposes in the year received, but reported in the income statement in later years when earned. The income tax rate is 40% each year. Times-Roman anticipates profitable operations in the future.

Required:

1. What is the balance sheet account for which a temporary difference is created by this situation?

• Earned subscription
• Unearned subscription

2. For each year, indicate the cumulative amount of the temporary difference at year-end.

3. Determine the balance in the related deferred tax account at the end of each year. Is it a deferred tax asset or a deferred tax liability?

Question 10 - A company reports pretax accounting income of $12 million, but because of a single temporary difference, taxable income is only S10 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%.

Prepare the appropriate journal entry to record income taxes.