Question 1 - 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?

2. For each year, indicate the cumulative amount of the temporary difference at year-end. (Enter your answers in thousands.)

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? (Enter your answers in thousands.)

4. How should the deferred tax amount be classified and reported in the balance sheet?

Question 2 - You are the new accounting manager at the Barry Transport Company. Your CFO has asked you to provide input on the company's income tax position based on the following:

1. Pretax accounting income was $42 million and taxable income was $8 million for the year ended December 31, 2016.

2. The difference was due to three items:

a. Tax depreciation exceeds book depreciation by $30 million in 2016 for the business complex acquired that year. This amount is scheduled to be $50 million in 2017 and to reverse as ($40 million) and ($40 million) in 2018, and 2019, respectively.

b. Insurance of $10 million was paid in 2016 for 2017 coverage.

c. A $6 million loss contingency was accrued in 2016, to be paid in 2018.

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

4. The tax rate is 40%.

Required:

1. Determine the amounts necessary to record income taxes for 2016 and prepare the appropriate journal entry.

2. How should the deferred tax amounts be classified in a classified balance sheet?

3. Assume the enacted federal income tax law specifies that the tax rate will change from 40% to 35% in 2018. When scheduling the reversal of the depreciation difference, you were uncertain as to how to deal with the fact that the difference will continue to originate in 2017 before reversing the next two years. Upon consulting PricewaterhouseCoopers' Comperio database, you found: .441 Depreciable and amortizable assets

Only the reversals of the temporary difference at the balance sheet date would be scheduled. Future originations are not considered in determining the reversal pattern of temporary differences for depreciable assets. FAS 109 [FASB ASC 740-Income Taxes] is silent as to how the balance sheet date temporary differences are deemed to reverse, but the FIFO pattern is intended.

You interpret that to mean that, when future taxable amounts are being scheduled, and a portion of a temporary difference has yet to originate, only the reversals of the temporary difference at the balance sheet date can be scheduled and multiplied by the tax rate that will be in effect when the difference reverses. Future originations (like the depreciation difference the second year) are not considered when determining the timing of the reversal. For the existing temporary difference, it is assumed that the difference will reverse the first year the difference begins reversing.

Determine the amounts necessary to record income taxes for 2016 and prepare the appropriate journal entry.

Question 3 - Fores Construction Company reported a pretax operating loss of $220 million for financial reporting purposes in 2016. Contributing to the loss were (a) a penalty of $15 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2016 and (b) an estimated loss of 20 million from accruing a loss contingency. The loss will be tax deductible when paid in 2017.

The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2016 other than those described above. Taxable income in Fores's two previous years of operation was as follows:

2014 - $ 115 million

2015 - 60 million

Required:

1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2016. Fores elects the carryback option.

2. What is the net operating loss reported in 2016 income statement?     

3. Prepare the journal entry to record income taxes in 2017 assuming pretax accounting income is $95 million. No additional temporary differences originate in 2017.

QUESTION 4 - Fores Construction Company reported a pretax operating loss of $260 million for financial reporting purposes in 2016. Contributing to the loss were (a) a penalty of $15 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2016 and (b) an estimated loss of 20 million from accruing a loss contingency. The loss will be tax deductible when paid in 2017.

The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2016 other than those described above. Taxable income in Fores's two previous years of operation was as follows:

2014 - $ 135 million

2015 - 80 million

Required:

1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2016. Fores elects the carryback option.

2. What is the net operating loss reported in 2016 income statement?

3. Prepare the journal entry to record income taxes in 2017 assuming pretax accounting income is $120 million. No additional temporary differences originate in 2017.           

QUESTION 5 - West Corp. leased a building and received the $36,000 annual rental payment on June 15, 2016. The beginning of the lease was July 1, 2016. Rental income is taxable when received. West's tax rates are 30% for 2016 and 40% thereafter. West had no other permanent or temporary differences. West determined that no valuation allowance was needed. What amount of deferred tax asset should West report in its December 31, 2016, balance sheet?

QUESTION 6 - In its December 31, 2016, balance sheet, Shin Co. had income taxes payable of $13,000 and a current deferred tax asset of $20,000 before determining the need for a valuation account. Shin had reported a current deferred tax asset of $15,000 at December 31, 2015. No estimated tax payments were made during 2016. At December 31, 2016, Shin determined that it was more likely than not that 10% of the deferred tax asset would not be realized. In its 2016 income statement, what amount should Shin report as total income tax expense?