Question

In: Accounting

Winx Company began operations at the beginning of 2018.The following information is available for this...

Winx Company began operations at the beginning of 2018.

The following information is available for this company:

• Pretax financial income for 2018 is $300,000.

• Differences between the 2018 income statement and tax return include:

- Depreciation on property, plant and equipment for financial reporting purposes was $20,000 lower than for tax purposes.

- Gross profit on construction contracts using the percentage-of-completion method equaled $82,000 in the company’s books. Gross profit on construction contracts for tax purposes was $67,000.

- Warranty expense accrued for financial reporting purposes was $39,000. Warranty deductions per the tax return amounted to $34,000.

- Revenue received in advance was recorded at $150,000 for tax purposes. Only $120,000 was earned for financial reporting purposes.

- A $7,000 fine paid for violation of pollution laws was deducted in computing pretax financial income.

- Interest revenue recognized on an investment in tax-exempt municipal bonds amounted to $11,000.

• The applicable tax rate is 20%.

• Taxable income is expected for the next few years.

Instructions:

a) For each of the differences above, calculate the dollar amount of the difference and identify if it is a temporary difference or permanent difference.

b) Compute taxable income for 2018.

c) Compute the deferred tax assets and liabilities at December 31, 2018 that relate to the temporary differences described above.

Expert Solution

A.

Particulars	Amount	Type
Depreciation on property, plant and equipment for financial reporting purposes was $20,000 lower than for tax purposes.	$20,000	Temporary difference
- Gross profit on construction contracts using the percentage-of-completion method equaled $82,000 in the company’s books. Gross profit on construction contracts for tax purposes was $67,000.	$15,000	Temporary difference
- Warranty expense accrued for financial reporting purposes was $39,000. Warranty deductions per the tax return amounted to $34,000.	$5,000	Permanent difference
- Revenue received in advance was recorded at $150,000 for tax purposes. Only $120,000 was earned for financial reporting purposes.	$30,000	Temporary difference
- A $7,000 fine paid for violation of pollution laws was deducted in computing pretax financial income.	$7,000	Permanent difference
- Interest revenue recognized on an investment in tax-exempt municipal bonds amounted to $11,000.	$11000	Permanent difference

B.

Particulars	Amount
• Pretax financial income for 2018	$300,000
Add:Depreciation on property, plant and equipment for financial reporting purposes was $20,000 lower than for tax purposes.	$20000
Less- Gross profit on construction contracts using the percentage-of-completion method equaled $82,000 in the company’s books. Gross profit on construction contracts for tax purposes was $67,000.	$15000
Add- Warranty expense accrued for financial reporting purposes was $39,000. Warranty deductions per the tax return amounted to $34,000.	$5000
Add- Revenue received in advance was recorded at $150,000 for tax purposes. Only $120,000 was earned for financial reporting purposes.	$30000
Add- A $7,000 fine paid for violation of pollution laws was deducted in computing pretax financial income.	$7000
Less- Interest revenue recognized on an investment in tax-exempt municipal bonds amounted to $11,000.	$11000
Total Taxable income	336000

C.

Particulars	Amount	Type	DTL	DTA
Depreciation on property, plant and equipment for financial reporting purposes was $20,000 lower than for tax purposes.	$20,000	Temporary difference	4000
- Gross profit on construction contracts using the percentage-of-completion method equaled $82,000 in the company’s books. Gross profit on construction contracts for tax purposes was $67,000.	$15,000	Temporary difference		3000
- Warranty expense accrued for financial reporting purposes was $39,000. Warranty deductions per the tax return amounted to $34,000.	$5,000	Permanent difference	0	0
- Revenue received in advance was recorded at $150,000 for tax purposes. Only $120,000 was earned for financial reporting purposes.	$30,000	Temporary difference	6000
- A $7,000 fine paid for violation of pollution laws was deducted in computing pretax financial income.	$7,000	Permanent difference	0	0
- Interest revenue recognized on an investment in tax-exempt municipal bonds amounted to $11,000.	$11000	Permanent difference	0	0
		Total	10000	3000
		NET DTL	7000

ekkarill92 answered 2 years ago

ina Company began operations at the beginning of 2021. The following information pertains to this company....

ina Company began operations at the beginning of 2021. The following information pertains to this company. 1. Pretax financial income for 2021 is $106,000. 2. The tax rate enacted for 2021 and future years is 20%. 3. Differences between the 2021 income statement and tax return are listed below: (a) Warranty expense accrued for financial reporting purposes amounts to $6,500. Warranty deductions per the tax return amount to $1,800. (b) Gross profit on construction contracts using the percentage-of-completion method per...

Pina Company began operations at the beginning of 2021. The following information pertains to this company....

Pina Company began operations at the beginning of 2021. The following information pertains to this company. 1. Pretax financial income for 2021 is $85,000. 2. The tax rate enacted for 2021 and future years is 20%. 3. Differences between the 2021 income statement and tax return are listed below: (a) Warranty expense accrued for financial reporting purposes amounts to $7,600. Warranty deductions per the tax return amount to $1,900. (b) Gross profit on construction contracts using the percentage-of-completion method per...

Bramble Company began operations at the beginning of 2021. The following information pertains to this company....

Bramble Company began operations at the beginning of 2021. The following information pertains to this company. 1. Pretax financial income for 2021 is $98,000. 2. The tax rate enacted for 2021 and future years is 20%. 3. Differences between the 2021 income statement and tax return are listed below: (a) Warranty expense accrued for financial reporting purposes amounts to $6,900. Warranty deductions per the tax return amount to $1,800. (b) Gross profit on construction contracts using the percentage-of-completion method per...

Bonita Company began operations at the beginning of 2021. The following information pertains to this company....

Bonita Company began operations at the beginning of 2021. The following information pertains to this company. 1. Pretax financial income for 2021 is $94,000. 2. The tax rate enacted for 2021 and future years is 20%. 3. Differences between the 2021 income statement and tax return are listed below: (a) Warranty expense accrued for financial reporting purposes amounts to $7,500. Warranty deductions per the tax return amount to $1,800. (b) Gross profit on construction contracts using the percentage-of-completion method per...

This information is available for Pharoah Company for 2017, 2018, and 2019. 2017 2018 2019 Beginning...

This information is available for Pharoah Company for 2017, 2018, and 2019. 2017 2018 2019 Beginning inventory $ 103,000 $ 319,000 $ 414,500 Ending inventory 319,000 414,500 472,000 Cost of goods sold 892,000 1,120,500 1,306,000 Net sales 1,200,000 1,605,500 1,903,000 Calculate inventory turnover for Pharoah Company for 2017, 2018, and 2019. (Round answers to 2 decimal places, e.g. 1.52.) 2017 2018 2019 Inventory turnover Calculate days in inventory for Pharoah Company for 2017, 2018, and 2019. (Round answers to 1...

The following information was available for Waterway Company at December 31, 2018: beginning inventory $107000; ending...

The following information was available for Waterway Company at December 31, 2018: beginning inventory $107000; ending inventory $61000; cost of goods sold $6132000; and sales $1440000. Waterway’s days in inventory in 2018 was 3.6 days. 21.3 days. 6.4 days. 5.0 days.

The following information is available for Sheffield Company at December 31, 2018: beginning inventory $139000; ending...

The following information is available for Sheffield Company at December 31, 2018: beginning inventory $139000; ending inventory $121000; cost of goods sold $845000; and sales $1880000. Sheffield’s inventory turnover in 2018 is 14.5 times. 6.2 times. 6.5 times. 6.9 times.

On April 1, 2018 Hippocrates Consulting began operations with the following beginning balances entered on April...

On April 1, 2018 Hippocrates Consulting began operations with the following beginning balances entered on April 1st as seen in the T-accounts below. First show each of the transactions described below as a journal entry including the date and then post each of the entries to the T-accounts below. After you have completed all of the entries as well as the adjusting entries prepare an Income Statement, Statement of Retained Earnings, and Balance Sheet for the month of April, 2018....

The following information is available for the Johnson Corporation for 2018: Beginning inventory $ 32,000 Merchandise...

The following information is available for the Johnson Corporation for 2018: Beginning inventory $ 32,000 Merchandise purchases (on account) 162,000 Freight charges on purchases (paid in cash) 17,000 Merchandise returned to supplier (for credit) 19,000 Ending inventory 37,000 Sales (on account) 257,000 Cost of merchandise sold 155,000 Required: Applying both a perpetual and a periodic inventory system, prepare the journal entries that summarize the transactions that created these balances. Include all end-of-period adjusting entries indicated.

The company began operations December 1, 2018. The information provided to each candidate is as follows....

The company began operations December 1, 2018. The information provided to each candidate is as follows. Cost Items and Account Balances Administrative salaries $17,500 Advertising 12,000 Cash, December 1 0 Depreciation on factory building 3,500 Depreciation on office equipment 900 Insurance on factory building 2,500 Miscellaneous expenses—factory 2,000 Office supplies expense 500 Professional fees 700 Property taxes on factory building 600 Raw materials used 90,000 Rent on production equipment 8,000 Research and development 12,000 Sales commissions 60,000...