In: Accounting
Farmer Inc. began business on January 1, 2019. Its pretax financial income for the first 2 years was as follows:
2019 $340,000
2020 760,000
The following items caused the only differences between pretax financial income and taxable income.
1. In 2019, the company collected $420,000 of rent; of this amount, $140,000 was earned in 2019; the other $280,000 will be earned equally over the 2020–2021 periods. The full $420,000 was included in taxable income in 2019.
2. The company pays $20,000 a year for life insurance on officers.
3. In 2020, the company terminated a top executive and agreed to $90,000 of severance pay. The amount will be paid $30,000 per year for 2020–2022. The 2020 payment was made. The $90,000 was expensed in 2020 for financial reporting purposes. For tax purposes, the severance pay is deductible as it is paid.
4. The company purchased a large asset in 2019 for $60,000. The depreciation will be computed using a five-year life. For tax purposes, the company will be able to deduct half of the cost in 2019 and in 2020.
The enacted tax rates existing on December 31, 2019, are:
2019 30% 2021 40%
2020 35% 2022 40%
Instructions:
(a) Determine taxable income for 2019 and 2020.
(b) Determine the deferred income taxes at the end of 2019, and prepare the journal entry to record income taxes for 2019.
(c) Prepare a schedule of future taxable and (deductible) amounts at the end of 2020.
(d) Prepare a schedule of the deferred tax (asset) and liability at the end of 2020.
(e) Compute the net deferred tax expense (benefit) for 2020.
(f) Prepare the journal entry to record income taxes for 2020.
To solve this question just input those variables which are to be used in logistic regression, as the question talks about using two variables only that is total loans and leases to total assets & total expenses/ total assets, so we will not input total cap/assets as an input variable in our excel, here we go
As one can see, we have taken only two variables , total exp/assets and total lns & leases/ assets in calculation, follwing steps have been followed to construct the above table
1. Assume logit= b0+ b1* independent variable1+ b2* independent variable 2 , take values of b0=0.1, b1=0.1, b2=0.1, note that these values of b0, b1 and b2 are just taken for calculation, one could assume any values here for bo , b1 and b2
2. Calculate exponential of logit in the next column by using exp (value in previous column)
3. Calculate probability by using formula, probability= exp (logit)/ { 1+ exp(logit)} in the next column
4. In next column, calculate log likelihood by using formula : financial condition value (i.e. 1 or 0) * LN( probability calculated in previous column) + (1- financial condition value)* LN( 1- probability calculated in previous column)
5. take the total of the column values of log likelihood
6. use solver function in excel to change this total by putting max value of 0 and changing the variable cells containing assumed values of b0, b1 and b2 , by clicking on solve, you will get actual values of b0, b1 and b2
which comes out to be b0=-14.72, b1=89.83, b2= 8.37
therefore you will get logit as
-14.72+ 89.83* Total exp/assets+8.37*Total lns & lsses/ assets
With values given in the question as total exp/ assets= 0.11 and total loans & leases/ assets= 0.6 , we get
logit as -14.72+ 89.83* 0.11+ 8.37*0.6= 0.1833
exp (logit) = 1.20
Probability= 0.546
Loglikelihood= 1*LN(0.546)+0*LN(1-0.546)= LN(0.546)= -0.605