A6_Check
Assignment #6
Check Numbers
Problem #1
Requirement 1: Income Tax Expense is $880,000
Problem #2
Requirement 2: Income Tax Expense is $220,000
Problem #3
Requirement 3: Income Tax Expense is $360,000
ACCTG472_A6_sol UPDATED
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THE PENNSYLVANIA STATE UNIVERSITY
Accounting 472
Intermediate Financial Accounting II – Spring 2021
Assignment #6
GENERAL INSTRUCTIONS:
This assignment is due on Tuesday, April 1st at 5:00 p.m. Please submit your solution on Canvas
using Excel by 5:00 p.m. on the due date. Note that late assignments will not be accepted.
Problem #1
Excess Tax Depreciation
At the beginning of 2021, the Eastman Company purchased equipment for $800,0000. The
economic life and salvage value for the equipment is 10 years and zero, respectively. For tax
purposes, Eastman uses an accelerated depreciation method. This resulted in a tax benefit of
$100,000. For financial reporting purposes, Eastman uses straight-line depreciation. The
temporary difference because of the difference in depreciation will reverse in later years.
Eastman had pre-tax accounting income of $2.2 million. The tax rate is 40%
REQUIRED:
1. Compute taxable income for Eastman. Calculate income tax expense, any defe
ed tax
amounts, and income tax payable for XXXXXXXXXXPrepare the journal entry for 2021.
2. Prepare a partial income statement and balance sheet for 2021.
Problem #2
Change in Tax Rates
During 2021, the Valley Produce Company reports taxable income and pre-tax accounting
income of $800,000 and $550,000, respectively. The difference is attributable to temporary
differences of:
1) Estimated litigation expense of $200,000 that is accrued for financial reporting
purposes during XXXXXXXXXXPayment on the litigation is not expected until 2024.
2) Valley Produce collects advertising revenue of $50,000 from another company in
advance during XXXXXXXXXXThe advertising will be earned during 2022 and 2023 (in equal
amounts).
The cu
ent tax rate is 30%. However, the (enacted) tax rate for 2023 and later is 40%. This is
the first year of operations for Valley Produce.
REQUIRED:
1. Calculate any defe
ed tax amounts and income tax payable, and prepare the journal entry
for 2021.
2. Alternatively assume that the cu
ent tax rate is 40%. Calculate income tax expense, any
defe
ed tax amounts, and income tax payable, and prepare the journal entry for 2021.
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Problem #3
Multiple Temporary Differences
First Capital Company had the following temporary differences on their financial statements and
tax return during 2021:
• Wa
anty expense accrued of $40,000 during the year, but not expected to be
paid in actual wa
anty claims until 2022 and 2023 (in equal amounts).
• Prepaid subscriptions of $200,000 during the year that will be recognized as
expense by First Capital during 2022.
• Gross profit on installment sales of $120,000 was recognized for financial
eporting purposes; however, the cash will be received in equal amounts during
XXXXXXXXXX.
The tax rate is 40%. First Capital reported taxable income of $620,000 during 2021, its first year
of operations.
REQUIRED:
1. For each temporary difference, indicate if they give rise to a future deductible or
future taxable amount for First Capital. What is the amount of the related DTA and
DTL that First Capital will have to recognize?
2. Calculate pre-tax accounting income for 2021.
3. Provide all required journal entries for 2021.
4. Prepare a (partial) balance sheet for 2021.
Problem #4
NOL Ca
ybacks and Ca
yforwards
The Red Truck Company reported the following taxable and financial income:
2016 $40,000
2017 $50,000
2018 $4,000
2019 ($70,000)
2020 $8,000
2021 $12,000
Red Truck chose to ca
yback and ca
yforward the NOL incu
ed during XXXXXXXXXXThe tax rate for
XXXXXXXXXXis 40%. During 2019, the enacted tax rate for 2020 and later became 35%.
REQUIRED:
Provide the journal entries for XXXXXXXXXX.
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Problem #4
The required journal entries for XXXXXXXXXXare:
2019 Journal Entry:
Receivable—Income Tax Refund $21,600
[$50,000 x 40%] + [$4,000 x 40%]
DTA [($70,000-$54,000) x 35%] $5,600
Income Tax Benefit $27,200
2020 Journal Entry:
Income Tax Expense $2,800
DTA [$8,000 x 35%] $2,800
2021 Journal Entry:
Income Tax Expense [Difference] $4,200
DTA [$8,000 x 35%] $2,800
Income Tax Payable [$4,000 x 35%] $1,400