Question

A) In 2017, Larkspur Corporation had pretax financial income of $164,000 and taxable income of $131,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40%. Compute the amount to be reported as income taxes payable at December 31, 2017.

B) Buffalo Corporation began operations in 2017 and reported pretax financial income of $212,000 for the year. Buffalo’s tax depreciation exceeded its book depreciation by $33,000. Buffalo’s tax rate for 2017 and years thereafter is 30%. Assume this is the only difference between Buffalo’s pretax financial income and taxable income.

Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable.

C) At December 31, 2017, Culver Corporation had a deferred tax liability of $27,200. At December 31, 2018, the deferred tax liability is $39,300. The corporation’s 2018 current tax expense is $44,900. What amount should Culver report as total 2018 income tax expense?

D) At December 31, 2017, Pina Corporation had an estimated warranty liability of $106,000 for accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 40%.

Compute the amount Pina should report as a deferred tax asset at December 31, 2017.

Answer 1