Accounting

Exercise 19-8 (Part Level Submission)

Wildhorse Company has the following two temporary differences between its income tax expense and income taxes payable.

The income tax rate for all years is 40%.

(a)

Assuming there were no temporary differences prior to 2017, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, 2018, and 2019. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

(b)

Indicate how deferred taxes will be reported on the 2019 balance sheet. Wildhorse’s product warranty is for 12 months.

(c)

Prepare the income tax expense section of the income statement for 2019, beginning with the line “Pretax financial income.” (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Exercise 19-17

Vaughn Co. establishes a $128,000,000 liability at the end of 2017 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2018. Also, at the end of 2017, the company has $64,000,000 of temporary differences due to excess depreciation for tax purposes, $8,960,000 of which will reverse in 2018.

The enacted tax rate for all years is 40%, and the company pays taxes of $81,920,000 on $204,800,000 of taxable income in 2017. Vaughn expects to have taxable income in 2018.

Determine the deferred taxes to be reported at the end of 2017.

Indicate how the deferred taxes computed above are to be reported on the balance sheet.

Assuming that the only deferred tax account at the beginning of 2017 was a deferred tax liability of $12,800,000, draft the income tax expense portion of the income statement for 2017, beginning with the line “Income before income taxes.” (Hint: You must first compute (1) the amount of temporary difference underlying the beginning $12,800,000 deferred tax liability, then (2) the amount of temporary differences originating or reversing during the year, and then (3) the amount of pretax financial income.)

Exercise 19-20 (Part Level Submission)

The differences between the book basis and tax basis of the assets and liabilities of Headland Corporation at the end of 2016 are presented below.

It is estimated that the litigation liability will be settled in 2017. The difference in accounts receivable will result in taxable amounts of $27,800 in 2017 and $25,600 in 2018. The company has taxable income of $325,000 in 2016 and is expected to have taxable income in each of the following 2 years. Its enacted tax rate is 34% for all years. This is the company’s first year of operations. The operating cycle of the business is 2 years.

(a)

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Exercise 19-24 (Part Level Submission)

Headland Inc. reports the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss.)

The tax rates listed were all enacted by the beginning of 2015.

(a)

Prepare the journal entries for years 2015–2018 to record income tax expense (benefit) and income taxes payable (refundable), and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-half of the benefits of the loss carryforward will not be realized. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)