Question

In: Accounting

1). Canner Co., organized on January 2, 2020, had pretax accounting income of $960,000 and taxable...

1). Canner Co., organized on January 2, 2020, had pretax accounting income of $960,000 and taxable income of $3,120,000 for the year ended
December 31, 2020. The only temporary difference is accrued product warranty costs which are expected to be paid as follows:

   2021       $720,000
   2022       360,000
   2023       360,000
   2024       720,000

The enacted income tax rates are 35% for 2020, 30% for 2021 through 2023, and 25% for 2024. If Canner expects taxable income in future years,
the deferred tax asset in Canner's December 31, 2020 balance sheet should be
a.   $432,000
b.   $504,000
c.   $612,000
d.   $756,000

2). Ames Corp. prepared the following reconciliation of income per books with income per tax return for the year ended December 31, 2020:

   Book income before income taxes                               2,700,000
   Add temporary difference
       Construction contract revenue which will reverse in 2021                           240,000
   Deduct temporary difference
       Depreciation expense which will reverse in equal amounts in
       each of the next four years                           (960,000)
   Taxable income                               1,980,000

The enacted income tax rate is 21% in 2020. How should Ames report deferred taxes?
a.   DTA (current) 50,400; DTL (noncurrent) 201,600.
b.   DTL (noncurrent) 201,600
c.   DTL (noncurrent) 151,200
d.   DTL (noncurrent 100,800

3). Baker Corp.'s 2020 income statement had pretax financial income of $500,000 in its first year of operations. Baker uses an accelerated cost
recovery method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions
for depreciation over the five-year life of the assets acquired in 2020, and the enacted tax rates for 2020 to 2024 are as follows:

       Book Depreciation
       Over (Under) Tax           Tax Rates
   2020       (100,000)       35%
   2021       (130,000)       30%
   2022       (30,000)       30%
   2023       120,000       30%
   2024       140,000       30%

There are no other temporary differences. In Baker's December 31, 2020 balance sheet, the noncurrent deferred income tax liability and
the income taxes currently payable should be

   Deferred Income       Income Taxes
   Tax Liability       Currently Payable
a.   $78,000        $100,000
b.   $78,000        $140,000
c.   $30,000        $120,000
d.   $30,000        $140,000

Expert Solution

Q1

Option C- $612000

2021	720000	30%	216000
2022	360000	30%	108000
2023	360000	30%	108000
2024	720000	25%	180000
			$612000

Q2

Option DTL (noncurrent) $151,200

Book Income- $2700000

Taxable Income-$1980000

Difference = $720000

Enacted Income Tax Rate -21%

DTL=$720000*21%

= $151200

Q3

Option B- b. $78,000 $140,000

Defereed Income Tax Liabilty = (120000+140000) *30%

=$78000

Income Tax Currently payable = ($500000-$100000)*35%

=$140000

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