Caper 22; Account “TAL ACCOUNTING A 0 for Fac 7, FINANC ND REPORTING PRopLemg Basic Procedures income ofF,000.000 ns cane ooo fie re re entity revealed the folowing tempers ett fF the ft Yt eid income and taxable income forthe ome, "POY dferences pr aa . u PTL. D Paoooo0 tZ 7” ‘ecaon in excess of book depreciation ~ rex epee oduct abit lim in excess of actual ein i 1,200,000 - ecru iment sales income in excess of taxable uae. ted instal y 7T ov repent sles come | 0 ana sncame tax rate 30% [| >> ute for the fllowing— required: abit tax asset at year-end, 120,000 C. 330,000 B 240,000 De 360,000 red tax liability at year-end, 2 peter 000 c. 780,000 a. 240,000 B= 1,020,000 4. Deferred tax expense for the first year. ‘A. 240,000 £660,000 360,000 D. "1,020,000 B. 360, 4, Total tax expense for the first year. A. 2,400,000 Cc. 3,300,000 B. 2,960,000 DB 3,060,000 PROBLEM 22-1 Answers & Solutions Guide P4, ANSWERD) 36 8 ha ‘Accrual for product liability claim in excess of actual claim (Future deductible amount) 41,200,000 X: Tax rate 30% Deferred tax asset 360,000 2. ANSWER: D zs ‘ Tax depreciation in excess of book depreciation 800,000 Reporte installment sales income in excess of taxable installment sales income 2,600,000 Total future taxable amount 3,400,000 X Tax rate 30% Deferred tax liability “(020.000 1167| =_— Chapter 22; At ER: C 3,400,000 en, unt 400, i retreat 2refe amount (1,200,000). vf Less: Fur able amount 2,200,000 net fate taxable ae : Tax ate a erred tax expense 660,000 ote: iit rested 10 net Future deductible amount the rest iy tax benefit. 4, ANSWER: D tax expense (8M x 30%) 2,400,000 curpedut): etered tax expense (benefit) __660,000_ Total tax expense 00 PROBLEM 22-2 Balance Sheet Method ier company reported the folowing difference between the book bags toss fase and lables on December 31, 2022 which s the end rpg ations: year of operation enn Amount Base Installment accounts receivable 1,000,000 s+ ‘200,000 > ¢) Litigation liablity It is expected that the itigation lability will be settied in 2023. The dienes ‘accounts receivable will result in taxable amounts of P600,000 in 2073 xy 400,000 in 2024. saan ‘The entity has a taxable income of 7,000,000 in’ 2022 and is expected tt taxable income in each of the following in each of the following 2 yeas Te income tax rate is 30%. Required: 5. What is the current tax expense? ‘A. 900,000 c. 2,100,000 B, 1,200,000 D. 2,200,000 6. What is the deferred tax expense? A Zero 240,000 8. 60,000 D. 300,000 7. What is the total tax expense? A. 2,240,000 230,000 B, 2,340,000 D. 3,230,000 1168Cc 4 F Se = Taxable income x Current ta 3% one = 7,000,000 x 30% ae tx tre ese = 2,100,000 tax sweR: C 2. Asie amount 1,000,000 puture eure deductible amount 200,000) — Les fre taxable amount ‘800,000 — ne racted tax rate a 30" X porred tax exPense 240,000 pote fest © 2 net future deductible amount, the result will be tax benefit , ANSWER: B tax expense 2,100,000: or edu Deferred tax expense (benefit) ___240,000_ otal tax expense 2,340,000 ~ pROBLEM 22-3 Bolonce Sheet Method ee greroer 3, 2022, the accouns of RCC Co. have the same bass or ‘eounting and tax PUTPOSES, ‘except for the followin: Carrying amount Tax base computer software cost 4,000,000 : Equipment 15,000,000 12,000,000 ‘Accrued liability-health care 2,000,000 ‘ sn envy 2022, the entity Incurred cost of 6,000,000 in relation to the 1 dnoment ofa computer software product The software cost was appropriately Taxable income ¥ _ Asset's carrying amount > Asset's tax base Lability’s carrying amount < Liability’s tax base Future deductible amount arises from the following: ¥ Accounting income < Taxable income ¥ _Asset’s carrying amount < Assets tax base ¥ — Uability’s carrying amount > Liability’s tax base 2. ANSWER: D Deferred tax liability = Future taxable amount x Enacted tax rate Deferred tax liability = 7,000,000 x 30% Deferred tax liability = 2,100,000 1170Chapen 28; ER: B oo “ind {0% Ireome Pasay t= Future deductible amount x Enacteg x at = 2,000,000 x 30% Enacted tax rate jee x asset = 600,000 ER: C 4. rable amount 7,000,000 Future Mure deductible amount —__ (2,000,000) tee iure taxable amount 5,000,000 30% te X Tomed tax expense 1,500,000 ‘ANSWER: D A tax expense 2,400,000 cuent rred taxerpense __1,500,000 otal tax expense 3,900,000 1M 22-4 Current Tax Liabili pROBLE! rted pre-tax financial i ny reported pre-tax financial income of PAD0 00 rat fon of nae taxes, the following data were gathey, ee 1 WE ple gain Pus - Nercation deducted for tx PUrPOSeS in excess of depreciation "175900 PD (-) educted for book purposes opr TZ . P25, ‘ax payment made during 2022 aa'so0 ee, enacted tax rate see 35% at amount shall be reported.as current tax liabili W300 ee ee ald % 51,250 D. 78,750 PROBLEM 22-4 Answers & Solutions Guide ANSWI Pretax financial income 400,000 Less: Non-taxable gain (175,000) Income subject to tax 225,000 Less: Aditional depreciation (25,000) Taxable income 200,000 Ye Tax rate 35% Income tax expense — 2022 70,000 less: Tax payments already made during 2022 __(27,500) Current tax liability 42,500 171 poreChapter 22. moBLEM 22-5 Creation and Reversal of Ter Meise eine following two independent situations: mPorary by fin, “ee | Situation Toone temporary difference atthe end of 2 at taxable ‘amounts of P1,100,000 in 2023, Piast 1,300,000 in 2025. The entity's pre-tax financial income e209 int : sas 25% forall years. There are no defered 1022 2 a bt ‘and the tax rat tthe beginning of 2022. sai 4, Compute for the current tax expense for the yea ) 2 prepare the journal entry to record income a2 | 2022. % ene, 3, Assume the pre-tax financial income for the ee | 7,000,000, compute for the taxable income for tes, ‘4, propare the journal entry to record income tay gy 2023. Xe ox Zne temporary difference at the end of 2022 that i sssmounts of 1,100,000 in 2023, Pt,200,000 M ea The entity's pre-tax financial income for 2022 a 25% for all years. There are no deferred tax aa Paty 2022, The entity expects profitable operations ty coy I Path Corp. cause deduct 1,300,000 in 2¢ and the tax rate Is at the beginning of the future. & i 1. Compute for the current tax expense for the year 2022, + prepare the journal entry to record income tax expen, 2022. 3. Assume the pre-tax financial income for the year 77,000,000, compute forthe taxable income for the year 4, Prapare the journal entry to record income tax expen 2023. EM 22-5 Answers & Solutions Guide ‘1. ANSWER: P600,000 Pre-tax financial income 6,000,000 Less: Future taxable amount (11M + 12M + 1. .3M) (3,600,000) Taxable income 72,400,000 x: Tax rate 8 Go Current tax expense : 600,000 2, ANSWER Income tax expense 1,500,000 Income tax payable 600,000 900,000 Deferred tax liability (3.6M x 25%) 172Chapter 28: He sere ansWER: 8,100,000 3 9} income 7,000, ree amount from 2022 Ero 0 sce income 8.100.000 re taxable amount that was deducted from 2022 tara ble income The fut note: The Fecable in the future years, thus, wil or ecomMe , wil increase “ fare Years ‘the taxable income of ER 4, ANSI expense (7M x 25%) 4,750,000 peo tO Tepity (ZUM x 2596) "275,000 ef aa i ‘ax payable (8.1M x 25%) Se sues TE eferred tox liability that arose in 2022 wil reverse starting 2023 ¥ sunt eR: 2,400,000 financial income tax fierjeducble amount (21M + 124+ 1.34) — ee ‘eqble income 9,600,000 x: Tex ate 25% ‘current tax expense 2,400,000 2. ANSWER penne tax expense 41,500,000, weird tax asset (3:60 X 25%) ‘900,000 Income tax payable 2,400,000 3. ANSWER: pretax financial income 7,000,000 fess Deductible amount from 2022 1,100,000) Taxable income 5,900,000” ote: Te future deductible amount that was added in 2022 taxable income wil to edutle nthe future years, thus, wil decrease the taxable income of the future years. ; 4. ANSWER income tax expense (7M x 25%) 4,750,000 Defered tax asset (1.1M x 25%) 275,000 income tax payable (5.9M x 25%) 1,475,000 Note: The deferred tax asset that arose in 2022 will reverse starting 2023. 11731M 22-6 Different Enacted Future Tax Rates"? bo, \OBLE! 6 eee matter tars ane Saf 10. In preparing the in im forthe 5 ae | ae termined the following differences between the vet = | taxable rromtaxable revenues, P70,000 inca deductible expenses, P200,000 Nom temporary aference,P350,000 Deductible temporary difference, P200,000 The temporary afferences are expected t0 reverse in the folowing ‘Taxable temporary Deductible temporary Ms difference 2003 70,000 100,000 2024 160,000 60,000 2025 ___120,000 __40,000_ 350,000 200,000 ‘The enacted tax rates for 2022 through 2025 are as follows: Year: Enacted tax rates! 2022 30% 2023 32% 2004 34% 2025 36% 1, How much is the taxable income for 2022? 2. How much is the current income tax expense for 20229 3. How much is the deferred tax liability on December 31 aon 4. How much is the deferred tax asset on December 31, 2073" 5, How much is the total income tax expense to be 2022? Feported fy 6, How much is the deferred tax liability on December 31, 2023 7. How much is the deferred tax liability on December 31, 2017 8. How much is the deferred tax asset on December 31, 20237 9. How much is the deferred tax asset on December 31, 20242 PROBLEM 22-6 Answers & Solutions Guide 1. ANSWER: P1,080,000 Pre-tax financial income 41,100,000 Less: Non-taxable revenues (70,000) ‘Add: Non-deductible expenses 200,000_ Income subject to tax 1,230,000 Less: Taxable temporary differences (350,000) ‘Add: Deductible temporary differences 200,000 Taxable income 1,080,000 2. ANSWER: P324,000 Current income tax expense = Taxable income x Current tax rate Current income tax expense = 1,080,000 x 30% Current income tax expense = 324,000 1174jou st Caseer 20, Hncome taxexPense 324,099 Meme tins, come tax payable 324,009 ,. ANSWER: P120,000 a 707 x 32%) a (aT 34%) 22400 32s (1207 x 369%) Seay red tax liability, 12/31/2922 —j-42,200 Defer 220,009 Bee tax expense 120,000 ee 120,000 4, ANSWER: P66,800 2023 (1007 x 32%) 22,00 9024 (607 x 34%) 200 95 (40T x 36%) Eran tax asset, 12/31/2022 seam Jounal entry: pefered tax asset 66,800 Income fax expense 66,800 5, ANSWER: P377,200 yrent income tax expense (See no. 2) fads Net deferred income tax expense 1207 ~ 6, 00) "2400 ye tax expense —<53.200_ Total income tax expe 6. ANSWER: P97,600 Deferred tax liability, 12/31/2022 120,000 Less: Amount reversed in 2023 __ 22,400) Deferred tax liability, 12/31/2023 97,600 ive solution: 2024 (160T x 34%) 54,400 2005 (1207 x 36%) 43,200_ Defered tax liability, 12/31/2023 97,600 Journal entry: Deferred tax liability 22,400 Income tax expense 22,400 Note: If a taxable temporary difference reverses during a speciic period, it decreases the income tax expense for that period. 7. ANSWER: P43,200 Oeered tax liability, 12/31/2023 97,600 Less: Amount reversed in 2024 _(54,400)_ Deferred tax liability, 12/31/2024 43,200 175 iChapeer 22, 8, ANSWER: P34,800 Meet 4, % peferred tax asset, 12/31/2022 64, tess: Amount reversed in 2023 S “C2000, ey X Deferred tax asset, 12/31/2023 3 Atemative solution: 2024 (607 x 34%) 20,400 2025 (407 x 36%) iaaco | Deferred tax asset, 12/31/2023 34,800 Journalentry: “ncome tax expense 32,000 Deferred tax asset 32,000 ote: If 2 deductible temporary difference reverses dur Thereases the income tax expense for that period, M0 Seat, H 9, ANSWER: P14,400 Deferred tax asset, 12/31/2023 34,800 Less: Amount reversed in 2024 (20,400) Deferred tax asset, 12/31/2024 14.400 ‘summary on creation and reversal of temporary differences: Creation Reversal Future taxable amount qDTLTITE © {DTL ITE Fature deductible amount DTA ITE DTA ITE DTL~ Deferred Tax Liability DTA Deferred Tax Asset ITE — Income Tax Expense Note: e pere is a direct relationship between deferred tax lability andra tax expense. 4s There isan inverse relationship between deferred tax asset andrea tax expense. 1176r22-1 Comprehensive _ 27022, Manheim Company reser Arcretng fo, Ipany reported prac Mame Tass the hore income t Sarg The ac Tra pire curen Ye, IMBENY reveled the tote Rea oe ine municipal bonds owing fomaton srrerance an premium (Manheim fe nary otis aura PY) Company's the °%050,000 eerie and char : roc reon deed On income tax return me ventas per econ records 0 agrees rade nore me erin fr probes losses rene roe expense O° the accrual basis ‘So.00 warranty payment Seon Airence colectons from customers, 30000 ate toate" the year 2022 Sooagn ea ana for tobe Yee "2023 onwards 20% . tow much tothe mle income? ~ § Hrow much Is current income tax expense? 3, what amount shall be pasererte ys deferred December 31? ener os 1. Bamarount shall be presented as deferad tx December 32: “ ah cosa Peer much is the total income tax expense? financial income ent differences taxable Fevernves: Interest income mice! bonds (1,050,000) ‘fe insurance premium 150,000 - ™ penalties and surcharges ___60,000_210,000_ | Income subject to tax 12,660,000 | Temporary differences” | rte taxable amounts | Additonal depreciation (4.05! ~ 21M) (1,950,000) Prepaid rentals (600,000) (2,850,000) Future deductible amounts Provision for probable losses 150,000 Accrued warranty (900T ~ 3007) 600,000 ‘Advance collections from customers Es 300,000_ 1,050,00 Taxable income 2, ANSWER: P3,: 000 Current income tax expense = ‘Taxable income * current tax rate Current income tax expense = 11,160,000 x Current income tax expense = 3,348,000 4177NswWER: P892,500 oture taxable amount Enacted fy 3 tax liailty = Deere tay jalty = 2,550,000 x 35% eng Deferred tax lability = 892,500 ANSWER: P367/500 are tax asset = Future deductible amount x Enacted futy, Deferred tax asset = 1,050,000 x 35% re Deferred tax asset = 367,500 5, ANSWER: P3/873,000 rrent income tax expense ia ise (892,500 - 367,500) 3,348.09) ‘Add: Deferred income tax expen : Total income tax expens® = PROBLEM 22 sive aE red to manufacture n 2022 copy machines that are sag ADI Co. basis. The entity recognized revenue when equipment is Sod forages) purposes and when installment payments are received for tax py alga Pury recognized revenues of PO,000,000 for financial reporting 1,500,000 for tax purposes 9 Pa aranteed the copy machines for 2 years. Wara for financial accounting purposes za ‘ es, Warranty expense accrued In 2022 If 2500009 300,000 of warranty is paid in 2022. sm aceon, during 2022, 500,000 interest, net of 209% fa income received and earned and P100,000 insurance ‘oremium on lf insurenceeme rece Se fe ofthe president was paid. The enty is the teint policy. te pretax accounting Income in 2022 was P2,000,000, Any operating sy wil be carried to 2023, The tax rate is 30%. ea ‘The entity ou ired: Compute for the following Requit 1, Current tax expense for the current year. A, Zero 480,000 B. 270,000 D. 870,000 2. Deferred tax asset on December 31, 2022. A. Zero c.— 600,000 B. 330,000 D. 870,000 3. Deferred tax liability on December 31, 2022, ‘A. 600,000 Cc. 1,350,000 B. 1,140,000 D. 1,950,000 1178Chapter 28: Pecrting fon Mcome Tass expense for the current year, A 1088! 2 480,000 s $rae00 D. 870,000 us 228 answers & Solutions Guide ppOseereweR: A ane ome 2,000,000 9 nce subjected to fra tx (600,000) ~ merance premium paid ___100,000_ ul 1,600,000 totex 600, pi ie amount (6H - 1.54) (4,500,000) ur trseape amount (2.5% — S007) _ 2000000 ja FE pert oss carrformard) (900,000) result of operations is an operating loss for tax purposes, the current tax ,SWER: D * eductible amount 2,000,000 rae oss carryforward 900,000 sure deductible amount 2,900,000 30%. axrate ; 870,000 peferred tax asset 3, ANSWER: C ably ~ Future taxable amount x Enacted tax rate tax liability = 4,500,000 x 30% Deferred tax liability = 1,350,000 4, ANSWER: C ‘current tax expense - Ierease in deferred tax liability 1,350,000 sss: Increase in deferred tax asset __(870,000) Total tax expense 480,000 Note: The entity will still report an income tax expense even if the current tax opens is zero because of the future taxable amounts that arose during the ‘current period. 1179