CHAPTER 14—TAXES ON THE FINANCIAL STATEMENTS
1599. CHAPTER
14—TAXES ON THE FINANCIAL STATEMENTS Question PR #1
Kooler, Inc., is a domestic corporation. It owns 100% of Texas, Inc., a
domestic corporation, 100% of Paris, a foreign corporation, and 45% of Iowa,
Inc., a domestic corporation.
a. |
Which entities’ incomes are included in Kooler’s combined GAAP financial statements? |
|
|
b. |
How would your answer change if Kooler instead owned 15% of Iowa? |
1600. CHAPTER
14—TAXES ON THE FINANCIAL STATEMENTS Question PR #2
Bunker, Inc., is a domestic corporation. It owns 100% of Texas, Inc., a
domestic corporation, 100% of Paris, a foreign corporation, and 35% of Iowa,
Inc., a domestic corporation.
a. |
Which entities’ incomes are included in Bunker’s Federal consolidated income tax return? |
|
|
b. |
How would your answer change if Bunker instead owned 15% of Iowa? |
1601. CHAPTER
14—TAXES ON THE FINANCIAL STATEMENTS Question PR #3
Rochelle, Inc., reported the following results for the current year.
Book income (before tax) |
$500,000 |
Tax depreciation in excess of book |
25,000 |
Non-tax-deductible warranty expense |
17,500 |
Municipal bond interest income |
20,000 |
Determine Rochelle’s taxable income for the current year. Identify any
temporary or permanent book-tax differences.
1602. CHAPTER
14—TAXES ON THE FINANCIAL STATEMENTS Question PR #4
PaintCo Inc., a domestic corporation, owns 100% of BrushCo Ltd., an Irish
corporation. Assume that the U.S. corporate tax rate is 35% and the Irish rate
is 10%. PaintCo is permanently reinvesting BrushCo’s earnings outside the
United States under ASC 740-30 (APB 23). The corporations’ book income,
permanent and temporary book-tax differences, and current tax expense are as
follows. Determine PaintCo’s total tax expense reported on its financial
statements, its current tax expense (benefit), and its deferred tax expense
(benefit).
|
PaintCo |
BrushCo |
Book income before tax |
$600,000 |
$400,000 |
Permanent differences |
|
|
Meals & entertainment expense |
40,000 |
–0– |
Municipal bond interest income |
(100,000) |
–0– |
Temporary differences |
|
|
Tax > book depreciation |
(100,000) |
–0– |
Book > tax bad debt expense |
20,000 |
–0– |
1603. CHAPTER
14—TAXES ON THE FINANCIAL STATEMENTS Question PR #5
PaintCo Inc., a domestic corporation, owns 100% of BrushCo Ltd., an Irish
corporation. Assume that the U.S. corporate tax rate is 35% and the Irish rate
is 10%. PaintCo is permanently reinvesting BrushCo’s earnings outside the
United States under ASC 740-30 (APB 23). The corporations’ book income,
permanent and temporary book-tax differences, and current tax expense are as
follows. Provide the income tax footnote rate reconciliation for PaintCo using
both dollar amounts and percentages.
|
PaintCo |
BrushCo |
Book income before tax |
$600,000 |
$400,000 |
Permanent differences |
|
|
Meals & entertainment expense |
40,000 |
–0– |
Municipal bond interest income |
(100,000) |
–0– |
Temporary differences |
|
|
Tax > book depreciation |
(100,000) |
–0– |
Book > tax bad debt expense |
20,000 |
–0– |
1604. CHAPTER
14—TAXES ON THE FINANCIAL STATEMENTS Question PR #6
Gator, Inc., is a domestic corporation with the following balance sheet for
book and tax purposes at the end of the year. Assume a 34% corporate tax rate
and no valuation allowance.
|
Tax Debit/(Credit) |
Book Debit/(Credit) |
||
Assets |
|
|
||
Cash |
$ 300 |
$ 300 |
||
Accounts Receivable |
5,000 |
5,000 |
||
Buildings |
300,000 |
300,000 |
||
Acc. Depreciation |
(150,000) |
(80,000) |
||
Furniture & Fixtures |
40,000 |
40,000 |
||
Acc. Depreciation |
(21,000) |
(15,000) |
||
Total Assets |
$174,300 |
$250,300 |
||
Liabilities |
|
|
|
Accrued Litigation Expense |
$ –0– |
($ 27,000) |
|
Note Payable |
(116,000) |
(116,000) |
|
Total Liabilities |
($116,000) |
($143,000) |
|
Stockholder Equity |
|
|
||
Paid in Capital |
($ 1,000) |
($ 1,000) |
||
Retained Earnings |
(57,300) |
(106,300) |
||
Total
Liabilities and |
|
($250,300) |
||
Gator Inc.’s gross deferred tax assets and liabilities at the beginning of
Gator’s year are listed below.
|
Beginning of Year |
|
Accrued Litigation Expense |
$21,000 |
|
Subtotal |
$21,000 |
|
Applicable Tax Rate |
´ 34% |
|
Gross Deferred Tax Asset |
$ 7,140 |
|
Building – Acc. Depreciation |
($61,000) |
Furniture & fixtures – Acc. Depreciation |
(3,200) |
Subtotal |
($64,200) |
Applicable tax rate |
´ 34% |
Gross deferred tax liability |
($21,828) |
Gator Inc.’s book income before tax is $6,300. Gator records two permanent
book-tax differences. It earned $250 in tax exempt municipal bond interest and
$460 in nondeductible meals and entertainment expense. Determine the change in
Gator’s deferred tax assets for the current year.
1605. CHAPTER
14—TAXES ON THE FINANCIAL STATEMENTS Question PR #7
Gator, Inc., is a domestic corporation with the following balance sheet for
book and tax purposes at the end of the year. Assume a 34% corporate tax rate
and no valuation allowance.
|
Tax Debit/(Credit) |
Book Debit/(Credit) |
||
Assets |
|
|
||
Cash |
$ 300 |
$ 300 |
||
Accounts Receivable |
5,000 |
5,000 |
||
Buildings |
300,000 |
300,000 |
||
Acc. Depreciation |
(150,000) |
(80,000) |
||
Furniture & Fixtures |
40,000 |
40,000 |
||
Acc. Depreciation |
(21,000) |
(15,000) |
||
Total Assets |
$174,300 |
$250,300 |
||
Liabilities |
|
|
|
Accrued Litigation Expense |
$ –0– |
($ 27,000) |
|
Note Payable |
(116,000) |
(116,000) |
|
Total Liabilities |
($116,000) |
($143,000) |
|
Stockholder Equity |
|
|
||
Paid in Capital |
($ 1,000) |
($ 1,000) |
||
Retained Earnings |
(57,300) |
(106,300) |
||
Total
Liabilities and |
|
($250,300) |
||
Gator Inc.’s gross deferred tax assets and liabilities at the beginning of
Gator’s year are listed below.
|
Beginning of Year |
|
Accrued Litigation Expense |
$21,000 |
|
Subtotal |
$21,000 |
|
Applicable Tax Rate |
´ 34% |
|
Gross Deferred Tax Asset |
$ 7,140 |
|
Building – Acc. Depreciation |
($61,000) |
Furniture & fixtures – Acc. Depreciation |
(3,200) |
Subtotal |
($64,200) |
Applicable tax rate |
´ 34% |
Gross deferred tax liability |
($21,828) |
Gator Inc.’s book income before tax is $6,300. Gator records two permanent book-tax
differences. It earned $250 in tax exempt municipal bond interest and $460 in
nondeductible meals and entertainment expense. Determine the net deferred tax
asset or net deferred tax liability at year end.
1606. CHAPTER
14—TAXES ON THE FINANCIAL STATEMENTS Question PR #8
Gator, Inc., is a domestic corporation with the following balance sheet for
book and tax purposes at the end of the year. Assume a 34% corporate tax rate
and no valuation allowance.
|
Tax Debit/(Credit) |
Book Debit/(Credit) |
||
Assets |
|
|
||
Cash |
$ 300 |
$ 300 |
||
Accounts Receivable |
5,000 |
5,000 |
||
Buildings |
300,000 |
300,000 |
||
Acc. Depreciation |
(150,000) |
(80,000) |
||
Furniture & Fixtures |
40,000 |
40,000 |
||
Acc. Depreciation |
(21,000) |
(15,000) |
||
Total Assets |
$174,300 |
$250,300 |
||
Liabilities |
|
|
|
Accrued Litigation Expense |
$ –0– |
($ 27,000) |
|
Note Payable |
(116,000) |
(116,000) |
|
Total Liabilities |
($116,000) |
($143,000) |
|
Stockholder Equity |
|
|
||
Paid in Capital |
($ 1,000) |
($ 1,000) |
||
Retained Earnings |
(57,300) |
(106,300) |
||
Total
Liabilities and |
|
($250,300) |
||
Gator Inc.’s gross deferred tax assets and liabilities at the beginning of
Gator’s year are listed below.
|
Beginning of Year |
|
Accrued Litigation Expense |
$21,000 |
|
Subtotal |
$21,000 |
|
Applicable Tax Rate |
´ 34% |
|
Gross Deferred Tax Asset |
$ 7,140 |
|
Building – Acc. Depreciation |
($61,000) |
Furniture & fixtures – Acc. Depreciation |
(3,200) |
Subtotal |
($64,200) |
Applicable tax rate |
´ 34% |
Gross deferred tax liability |
($21,828) |
Gator Inc.’s book income before tax is $6,300. Gator records two permanent
book-tax differences. It earned $250 in tax exempt municipal bond interest and
$460 in nondeductible meals and entertainment expense. Determine the change in
Gator’s deferred tax liabilities for the current year.
1607. CHAPTER
14—TAXES ON THE FINANCIAL STATEMENTS Question PR #9
Gator, Inc., is a domestic corporation with the following balance sheet for
book and tax purposes at the end of the year. Assume a 34% corporate tax rate
and no valuation allowance.
|
Tax Debit/(Credit) |
Book Debit/(Credit) |
||
Assets |
|
|
||
Cash |
$ 300 |
$ 300 |
||
Accounts Receivable |
5,000 |
5,000 |
||
Buildings |
300,000 |
300,000 |
||
Acc. Depreciation |
(150,000) |
(80,000) |
||
Furniture & Fixtures |
40,000 |
40,000 |
||
Acc. Depreciation |
(21,000) |
(15,000) |
||
Total Assets |
$174,300 |
$250,300 |
||
Liabilities |
|
|
|
Accrued Litigation Expense |
$ –0– |
($ 27,000) |
|
Note Payable |
(116,000) |
(116,000) |
|
Total Liabilities |
($116,000) |
($143,000) |
|
Stockholder Equity |
|
|
||
Paid in Capital |
($ 1,000) |
($ 1,000) |
||
Retained Earnings |
(57,300) |
(106,300) |
||
Total
Liabilities and |
|
($250,300) |
||
Gator Inc.’s gross deferred tax assets and liabilities at the beginning of
Gator’s year are listed below.
|
Beginning of Year |
|
Accrued Litigation Expense |
$21,000 |
|
Subtotal |
$21,000 |
|
Applicable Tax Rate |
´ 34% |
|
Gross Deferred Tax Asset |
$ 7,140 |
|
Building – Acc. Depreciation |
($61,000) |
Furniture & fixtures – Acc. Depreciation |
(3,200) |
Subtotal |
($64,200) |
Applicable tax rate |
´ 34% |
Gross deferred tax liability |
($21,828) |
Gator Inc.’s book income before tax is $6,300. Gator records two permanent
book-tax differences. It earned $250 in tax exempt municipal bond interest and
$460 in nondeductible meals and entertainment expense. Determine Gator’s change
in net deferred tax asset or net deferred tax liability for the current year
and provide the journal entry to record this amount.
1608. CHAPTER
14—TAXES ON THE FINANCIAL STATEMENTS Question PR #10
Gator, Inc., is a domestic corporation with the following balance sheet for
book and tax purposes at the end of the year. Assume a 34% corporate tax rate
and no valuation allowance.
|
Tax Debit/(Credit) |
Book Debit/(Credit) |
||
Assets |
|
|
||
Cash |
$ 300 |
$ 300 |
||
Accounts Receivable |
5,000 |
5,000 |
||
Buildings |
300,000 |
300,000 |
||
Acc. Depreciation |
(150,000) |
(80,000) |
||
Furniture & Fixtures |
40,000 |
40,000 |
||
Acc. Depreciation |
(21,000) |
(15,000) |
||
Total Assets |
$174,300 |
$250,300 |
||
Liabilities |
|
|
|
Accrued Litigation Expense |
$ –0– |
($ 27,000) |
|
Note Payable |
(116,000) |
(116,000) |
|
Total Liabilities |
($116,000) |
($143,000) |
|
Stockholder Equity |
|
|
||
Paid in Capital |
($ 1,000) |
($ 1,000) |
||
Retained Earnings |
(57,300) |
(106,300) |
||
Total Liabilities
and |
|
($250,300) |
||
Gator Inc.’s gross deferred tax assets and liabilities at the beginning of
Gator’s year are listed below.
|
Beginning of Year |
|
Accrued Litigation Expense |
$21,000 |
|
Subtotal |
$21,000 |
|
Applicable Tax Rate |
´ 34% |
|
Gross Deferred Tax Asset |
$ 7,140 |
|
Building – Acc. Depreciation |
($61,000) |
Furniture & fixtures – Acc. Depreciation |
(3,200) |
Subtotal |
($64,200) |
Applicable tax rate |
´ 34% |
Gross deferred tax liability |
($21,828) |
Gator Inc.’s book income before tax is $6,300. Gator records two permanent
book-tax differences. It earned $250 in tax exempt municipal bond interest and
$460 in nondeductible meals and entertainment expense. Calculate Gator’s
current tax expense.
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