Question :1
On 31st December, 2011, Munson Company finished its first year of operations. It has a number of differences between its taxable income and its pretax financial income. It recognizes that its pretax financial income is 220,000, but does not yet identify its taxable income. Munson is subject to a tax rate of 25 % in 2011, and a current tax law change resulted in an enacted tax rate of 32 % for future years. The differences between taxable income and pretax financial income are explained below.
Munson invested in tax-exempt bonds issued by the State of Alabama. Munson recorded and received as income for accounting purposes $7,000 of interest income in 2011.
Depreciation on machinery in 2011 was $28,000 for accounting principles. Munson's tax accountant properly recorded $36,000 of depreciation on Munson's 2011 tax return.
Munson agreed to rent space to Cerone Co. Munson received $12,000 of rent, all of which is subject to tax in 2011. Thus, Munson earned only half of the rent in 2011 (it may earn the other half in 2012), so just half of the payment received is income in the financial statements.
For 2011, Munson accrued $10,000 of bad debt expenditure on its income statement based on the allowance method. Thus, Munson must use the direct write-off method for tax purposes and it did not write off any accounts receivable in 2011.
Required:
i. Evaluate the Munson's taxable income for 2011?
ii. What is existing income tax expense for the year ended 12/31/11?
iii. List any deferred tax assets or/ and liabilities as of 12/31/11, clearly showing for each a dollar amount, whether it is an asset or liability, and whether it is current or long-term.
Question :2
In 2012, Cornog Company reports a loss of $120,000 (this is both its pretax financial loss and taxable loss). Prior to 2012, Cornog had been victorious and had reported and paid taxes on the subsequent taxable income (pretax financial income was the similar as taxable income in each of the three years):
2009: $37,000
2010: 50,000
2011: 54,000
Cornog had been subject to tax rates of 20 percent in 2009 through 2011. Its tax rate in 2012 is 35 percent and its enacted tax rate may be 40 percent in years after 2012.
Required:
a. When Cornog completes its 2012 financial statements, it may be add both its 2010 and 2011 income statements along with the 2012 income statement (for comparative purposes). What may it report as tax expense (benefit) and pretax financial income for 2011 if it selects the carryback or carryforward option for the 2012 net operating loss? Fill in the blanks below ( if non-zero, enter tax expense, as a positive number for expense or negative number for benefit):
2011 Tax expense (benefit) if carryback option taken _______________
2011 Tax expense if (benefit) carryforward option taken _______________
b. If Cornog select the carryback option, evaluate tax expense (benefit) for 2012? In addition, two assets may be created in the journal entry to record tax expense (benefit). Fill in the blanks below consequently.
2012 Tax expense (benefit) $____________; and Circle one: Expense (Benefit)
Related assets as of 12/31/12:
Name of Asset __________________________; and $______________
Name of Asset __________________________; and $______________
Question :3
a. For the year ended 31st December, 1994, its first year in existence, Tyre Co. reported pretax financial statement income of $750,000. Its taxable income was $650,000. The dissimilarity is because of a temporary difference. Tyre's present tax rate is 30%, and its future enacted tax rate is 35%. Tyre made evaluated tax payments during 1994 of $90,000. What amount could Tyre report as total deferred tax liabilities or assets as of 12/31/1994 (you must show a dollar amount and, if non-zero, state whether it is an asset or a liability)?
b. In its 1993 income statement, Cere Co. reported pretax financial income of $300,000. Cere evaluated that, because of temporary differences, taxable income for 1993 is $280,000. Through 1993 Cere made evaluated tax payments of $50,000, which were debited to income tax expense. Cere is subject to a 30 percent tax rate. What amount could Cere report as total income tax expense for 1993?