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Use the following information for questions 86–88. At the beginning of 2015; Elephant, Inc. had a...

Use the following information for questions 86–88.

At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $4,000 and a deferred tax liability of $6,000. Pre-tax accounting income for 2015 was $300,000 and the enacted tax rate is 40%. The following items are included in Elephant’s pre-tax income:

Interest income from government obligations

$24,000

Accrued warranty costs, estimated to be
     paid in 2016

$52,000

Operating loss carryforward

$38,000

Installment sales revenue, will be collected
    in 2016

$26,000

Prepaid rent expense, will be used in 2016

$12,000

86.     What is Elephant, Inc.’s taxable income for 2015?

a.   $300,000

b.   $252,000

c.   $348,000

d.   $452,000

87.     Which of the following is required to adjust Elephant, Inc.’s deferred tax asset to its correct balance at December 31, 2015?

a.   A debit of $20,800

b.   A credit of $15,200

c.   A debit of $15,200

d.   A debit of $16,800

the answer is D why ???

88.     The ending balance in Elephant, Inc’s deferred tax liability at December 31, 2015 is

a.   $9,200

b.   $15,200

c.   $10,400

d.   $31,200

the answer is B why ???

Solutions

Expert Solution

86. What is Elephant, Inc.’s taxable income for 2015?

ANSWER = B) $252,000

Elephant, Inc.’s taxable income for 2015 = Pre-tax accounting income - Interest income from government obligations + Accrued warranty costs, estimated to be paid in 2016 - Operating loss carryforward - Installment sales revenue, will be collected in 2016 - Prepaid rent expense, will be used in 2016

= 300,000 - 24,000 + 52,000 - 38000 - 26,000 - 12,000

= $ 252,000

87.     Which of the following is required to adjust Elephant, Inc.’s deferred tax asset to its correct balance at December 31, 2015?

ANSWER = D).   A debit of $16,800

($ 52000 * 0.40) - $ 4000

= $16800

88.     The ending balance in Elephant, Inc’s deferred tax liability at December 31, 2015 is

ANSWER = B) $15,200

= (Installment sales revenue, will be collected in 2016 + Prepaid rent expense, will be used in 2016) * 0.40

= ($ 26000 + $ 12000) * 0.40

= $ 15,200

ekkarill92 answered 1 year ago
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