SuperSports Inc.reported pretax financial income of $260,000 for the year 2016. Taxable income of...

Question

SuperSports Inc.reported pretax financial income of $260,000 for the year 2016. Taxable income of SuperSports is however different from its pretax financial income because of the items given below.

Depreciation deducted on the tax return is $40,000 greater than the depreciation charged on Income Statement.
Estimated Warranties Expenses charged to Income Statement is $30,000 but Warranties expenses deductible on tax return are $20,000
$3,200 appear in the income statement of SuperSports as Fines and penalties paid.
SuperSports received $ 6,000 interest from Tax Saving Municipal Bonds.

Enacted Tax Rate for the year 2016 is 30% and for 2017 is 35%

Required: For the year 2016, SuperSports Inc. requests you to:

Identify items of permanent and temporary difference from the information given
What items of temporary difference result in future taxable amounts and what items will result in future deductible amounts
Compute Taxable Income
Compute current income tax expense/Tax payable
Compute deferred taxes ( Deferred Tax Liability and Deferred Tax Asset)
Record journal entry for Income Tax Expense
Show how deferred taxes will be reported in the Balance Sheet.

Case Study Part B

SuperSports provides you the following pension data for the year 2016.

Item
Service Cost, 2016	$248,000
Projected Benefit Obligation, January 2016	$340,000
Plan assets (fair value), Januray 1, 2016	$360,000
Prior Service Cost - AOCI (2016 amoritization, $25,000)	$250,000
Net Loss - AOCI (2016 amoritization, $10,000)	$110,000
Actual Return on Plan Assets	$45,000
Interest rate and expected return on plan assets	10%
Contributions made to plan assets during 2016	$175,000

SuperSports requests you to:

Compute pension expense for the year 2016
Record 2016 journal entry for pension expense

Robert · Accepted Answer

Case Study Part A 
1. Identify items of permanent and temporary difference from the information given 
The accounting profit of a company differs from its taxable profit primarily due to timing/ 
temporary or permanent differences. These differences arise mainly due to allowance and 
disallowance of certain incomes and expenses by the income tax authorities for the purpose of 
calculation of taxable income. 
Permanent differences are such business transactions which are recognized in the financial 
statements but shall not ever be allowed/ deductible under income tax returns. Thus, the 
following are the permanent differences in Super Sports Inc for FY 2016: 
1. Fines and penalties paid for $3,200 as the same are not allowed as deductible expenses 
for taxation purposes. 
2. Interest from Tax Saving Municipal Bonds of $ 6,000 as they come under the purview of 
exempted incomes 
Similarly, temporary or timing differences are those business income or expense which are 
recognized in financial statements of a certain period but are allowable in different periods for 
the purpose of tax. Thus, the following are the temporary differences in Super Sports Inc for FY 
2016:

SuperSports Inc.reported pretax financial income of $260,000 for the year 2016. Taxable income of SuperSports is however different from its pretax financial income because of the items given below....

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