Question

In: Accounting

Motown Corporation enters into an installment sale with Max Corporation in 20X2. Motown recognizes the sale...

Motown Corporation enters into an installment sale with Max Corporation in 20X2. Motown recognizes the sale on an accrual basis (when sale is complete) for book purposes and on an installment sale method (cash) basis for tax purposes. Facts are as follows:

Initial Year of installment sale: 20X2

Revenue Recognition

Book Tax

20X2 136,750

20X3 50%

20X4 50%

Tax Rate 20%

Book Income

20X2 $ 186,755

20X3 $ 39,427

20X4 $ 122,400

1.) Calculate taxable income for 20X2.
2.) Calculate taxes payable for 20X2.
3.) Determine the current deferred tax liability at 12/31/X2.

4.) calculate total income tax expense for 20X2.
5.) Compute net income after taxes for 20X2.
6.) Calculate taxable income for 20X3.
7.) The entry required at the end of 20X3 requires:

A. Debit to the Deferred tax liability for 7,885 $

B. Debit to the Deferred tax liability for 13,675 $

C. Debit to the Deferred tax liability for 21,560 $

D. Credit to the Deferred tax liability for 7,885 $

E. Credit to the Deferred tax liability for 13,675 $

F. Credit to the Deferred tax liability for 21,560 $

G. None of the above
8.) Compute net income after taxes for 20X3.
9.) Calculate taxable income for 20X4.
10.) Compute net income after taxes for 20X4.

Expert Solution

	2002	2003	2004
Book Income	$ 186,755	$ 39,427	$ 122,400
Tax Adjustment @50%	$ (136,750)	$ 68,375	$ 68,375
Taxable Income	$ 50,005	$ 107,802	$ 190,775
Income tax @20%	$ 10,001	$ 21,560	$ 38,155
DTL/(DTA) (adjustment * 20%)	$ 27,350	$ (13,675)	$ (13,675)
Income tax expense	$ 37,351	$ 7,885	$ 24,480

Net Income(Book Income-IT expense)	$ 149,404	$ 31,542	$ 97,920

1. Taxable Income for 20X2 = $ 50,005

2. Tax Payable for 20X2 = $ 10,001

3. Current Deferred Tax Liability for 20X2 = 136,750 * 20% = $ 27,350

4. Total Income tax expense for 20X2 = $37,351

5. Net Income after tax for 20X2 = $149,404

6. Taxable income for 20X3 = $107,802

7. The DTL gets reversed by $13,675 (i.e., 68375*20%) therefore DTL is debited with a credit to DT.

Option B is the answer.

8. Net income after tax for 2003 = $31,542

9. Taxable income for 2004 = $190,775

10. Net income after tax for 2004 = $97,920

ekkarill92 answered 2 years ago

A car manufacturer recognizes the sale of 40,000 cars in its income statement. All cars have...

A car manufacturer recognizes the sale of 40,000 cars in its income statement. All cars have been prepaid but not yet shipped to the customer. Assuming that sale is profitable, the accelerated recognition of this sale as revenue is likely to lead to the distortions in the following ratios: • Net Income higher – no effect – lower • Asset turnover higher – no effect- lower • Debt-to-equity higher – no effect - lower

34) During the current year, LaVone recognizes a $30,000 Sec. 1231 gain on sale of land...

34) During the current year, LaVone recognizes a $30,000 Sec. 1231 gain on sale of land and a $18,000 Sec. 1231 loss on the sale of land. Prior to this, LaVone's only Sec. 1231 item was a $14,000 loss six years ago. LaVone must report a A) $12,000 net LTCG. B) $12,000 ordinary income. C) $14,000 ordinary income. D) $10,000 ordinary income and $2,000 net LTCG. 35) Sec. 1231 property will generally have all the following characteristics except A) real...

12. Indicate below whether the installment sale method of accounting can apply to each of these...

12. Indicate below whether the installment sale method of accounting can apply to each of these transactions (answer “yes” = installment method possible or “no” = installment method not allowed): _____ Sale of 12-acre tract of land held as inventory by a real estate developer where payment will be received in 2 years. _____ Sale of business equipment where payment is due after year end. _____ Sale of commercial building subject to seller note (where payment is to be received...

40. What was the balance in Accumulated Depreciation on December 31, 20x2 if Max company used the S/L method?

On July 1, 20x1, Max company acquired equipment for $1,500,000. Its estimated life was 5 years or 40,000 hours. The residual value was estimated as $100,000. 40. What was the balance in Accumulated Depreciation on December 31, 20x2 if Max company used the S/L method? A. $140,000 B. $280,000 C. $420,000 D. $560,000 Your answer (A, B, C, or D) Show your calculation in detail. 41. What was the balance in Accumulated Depreciation on December 31, 20x2...

Motown Corporation uses the straight-line depreciation method for book purposes and has the following assets. ROUND...

Motown Corporation uses the straight-line depreciation method for book purposes and has the following assets. ROUND ALL ANSWERS TO THE NEAREST DOLLAR. asset Depreciable basis placed in service service life furniture $88,000 1/15/x0 3 years computer equipment 22,600 6/30/x1 5 years office machinery 68,000 11/1/x3 7 years manufacturing equipment 108,000 2/15/x2 10 years year ending 12/31/x3 a. Calculate current year depreciation expense on the furniture and record the journal entry: b. Calculate current year depreciation expense on the computer and...

An S corporation converted from a C corporation in 20X2 has the following: Built-in gains of...

An S corporation converted from a C corporation in 20X2 has the following: Built-in gains of $20,000 Taxable income, computed as if the corporation were a C corporation of $30,000 What is the built-in gains tax? A. $3,000 B. $4,500 C. $7,000 D. $10,500

Motown Corporation has the following transactions: Common shares issued: 236,000 Par value per share: 1.00 $...

Motown Corporation has the following transactions: Common shares issued: 236,000 Par value per share: 1.00 $ Share issue costs in total: 248,000 $ Date issued/purchased: 1/1/X1 Purchased for per share: 33.00 ________________________________________________________________________________________________ 4.) Consider the required journal entrie(s). What is the NET CREDIT amount that goes to the Paid in Capital account. 5.) Consider the required journal entrie(s). What is the TOTAL impact on stockholder's equity from all journal entries? If it is an INCREASE simply type in the amount....

Pretzel Corporation owns 60 percent of Stick Corporation’s voting shares. On January 1, 20X2, Pretzel Corporation...

Pretzel Corporation owns 60 percent of Stick Corporation’s voting shares. On January 1, 20X2, Pretzel Corporation sold $180,000 par value, 6 percent first mortgage bonds to Stick for $185,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. a. Prepare the journal entries for 20X2 for Stick related to its ownership of Pretzel’s bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do...

The Magnus Corporation, a publicly accountable entity, had the following investments as at December 31, 20x2:...

The Magnus Corporation, a publicly accountable entity, had the following investments as at December 31, 20x2: Company Type Classification Original Cost Carrying Value Fair Value Will Corp. Shares FVPL $65,000 $61,000 $58,000 Simon Co. Shares FVPL 205,000 212,000 225,000 Craig Inc. Shares FVOCI 82,000 88,000 106,000 Frey Inc. Shares FVOCI 94,000 80,000 88,000 Blandin Co. Bonds FVOCI 210,106 210,106 210,106 The Blandin Co. bonds were purchased on December 31, 20x2. The bonds have a face value of $200,000, pay interest...

Petunia Corporation acquired 90 percent of the stock of Spring Company on January 1, 20X2, for...

Petunia Corporation acquired 90 percent of the stock of Spring Company on January 1, 20X2, for $360,000. At that date, the fair value of the noncontrolling interest was $40,000. Spring’s balance sheet contained the following amounts at the time of the combination: Cash $ 20,000 Accounts Payable $ 25,000 Accounts Receivable 60,000 Bonds Payable 75,000 Inventory 70,000 Common Stock 100,000 Buildings and Equipment (net) 350,000 Retained Earnings 300,000 Total Assets $ 500,000 Total Liabilities & Equity $ 500,000 During...