Pixie, Inc. began 2018 with the following balances in deferred tax accounts:Deferred Tax AssetsDTA -Valuation AllowanceDeferred...

Pixie, Inc. began 2018 with the following balances in deferred tax accounts:Deferred Tax AssetsDTA -Valuation AllowanceDeferred Tax Liabilities$180,000 (DR)$10,000 (CR)$120,000 (CR)The deferred tax asset resulted from $600,000 of unearned revenue that was received in 2017, but will be earned for financial reporting purposes evenly across the next three years (2018, 2019, and 2020). The deferred tax liability resulted from the financial accounting bases of depreciable assets exceeding the tax bases of depreciable assets by $400,000 due to excess MACRS depreciation over straight-line in previous years. Pre-tax accounting income in 2018and 2019is $280,000 and $300,000, respectively and includes non-taxable municipal bond interest of $80,000 in both 2018and 2019. During 2018MACRS (tax) depreciation exceeded straight-line (financial) depreciation by $110,000. In2019, the timing difference related to depreciation began to reverse in that MACRS depreciation was $70,000 less than straight-line depreciation. In2018, Pixie recognized $80,000 in installment revenue as part of pretax financial accounting income, but the money will not be received and taxable until 2019. Pixie also incurred a $40,000 fine in 2018for an EPA violation which was recognized as an expense for financial reporting purposes. At the end of 2018, management estimated that the DTA –Valuation Allowance account should have a balance of 10% of the Deferred Tax Asset balance. Pixie management decided that at the end of 2019, the valuation allowance should be 5% of the Deferred Tax Asset balance.The tax rate was 30% for 2017and 2018, but during 2018Congress changed the applicable tax rate to 21% for 2019and all subsequent years. In the event of a net operating loss, use the new tax rule under the TCJA related to NOLs: NOL carry forward and 80% limitation.
Required:
(a)Calculate taxable income for 2018and 2019.
(b)Calculate the balances in Deferred Tax Asset, Deferred Tax Liabilities, and DTA -Valuation Allowance as of 12/31/18and 12/31/19.
(c)Determine Income Tax Expense or Benefit for 2018and 2019.
(d)Record the journal entries for income tax recognition that would be made as of the end of 2018and 2019.
(e)Calculate the effective tax rates for 2018and 2019.
(f)Prepare the bottom of the income statement for Pixie just for 2018, beginning with ‘Income before Income Taxes’ –you do not need to separate income tax expense or benefit into current and non-current portions.

Solutions

Expert Solution

THIS CHART ANSWERS MOST OF THE QUESTIONS. JUST MISSING THE JOURNAL ENTRIES. SORRY... TIME WAS NOT ENOUGH

	2018	2019
Pretax accounting income	280,000.00	300,000.00
Less: exempt income (municipal bond interest)	(80,000.00)	(80,000.00)
legal expense	(40,000.00)
less: installment recognized for tax purposes	(110,000.00)
Accounting income for tax purposes	50,000.00	220,000.00
Corporate tax rate	0.30	0.21
Income tax expense	15,000.00	46,200.00

Add: earned revenue recognized for tax purposes 2019		80,000.00
less: accounting depreciation 2018	(110,000.00)	-
Add: accounting depreciation2019		70,000.00
taxable income/loss	(60,000.00)	370,000.00
Corporate tax rate	0.30	0.21
Income tax payable	(18,000.00)	77,700.00
Income tax expense or benefit on income statement	(18,000.00)	77,700.00

deffered assets 180000+80000=260000 2018. 260000-77700= 182300 2019

deffered liabilities 110000 2018 110000 +70000= 180000 2019

valuation allowance should be 5% of the DTA balance 26000 2018 9115 2019

effective tax rate 2019

77700/300000=0.259 = 26%

2018= 0/280000= 0%

ekkarill92 answered 11 months ago

Next > < Previous

Related Solutions

Question 1 At 30 June 2019, Beta Ltd had the following deferred tax balances: Deferred tax...

Question 1 At 30 June 2019, Beta Ltd had the following deferred tax balances: Deferred tax liability $18,000 Deferred tax asset 15,000 Beta Ltd recorded a profit before tax of $80,000 for the year to 30 June 2020, which included the following items: Depreciation expense – plant $7,000 Doubtful debts expense 3,000 Long-service leave expense 4,000 For taxation purposes the following amounts are allowable deductions for the year to 30 June 2020: Tax depreciation – plant $8,000 Bad debts written...

KLH Company reported the following in the footnotes for its deferred tax assets (DTA): Valuation allowance...

KLH Company reported the following in the footnotes for its deferred tax assets (DTA): Valuation allowance for DTA at the beginning of the year $2,700 Valuation allowance for DTA at the end of the year $3,900 Based on this information, the firm most likely expects future earnings to: A) increase B) decrease C) remain relatively stable

4. Which of the following is true with respect to deferred tax assets and deferred tax...

4. Which of the following is true with respect to deferred tax assets and deferred tax liabilities a. A permanent difference is always recorded as a deferred tax asset b. A valuation allowance is appropriate only when it is more likely than not that deferred tax asset will not be recognized c. All deferred tax assets and deferred tax liabilities are reported as noncurrent in the balance sheet d. A net operating loss gives rise to a deferred tax liability

20x2 began with a $ 24,000 balance in the firm's deferred tax liability. This was based...

20x2 began with a $ 24,000 balance in the firm's deferred tax liability. This was based on the 12/31/x1 prepaid insurance balance of $120,000. The tax rate is 20%. The $120,000 prepaid insurance balance coverage for 20x2 and 20x3 equally. In late December 20x2, the firm performed accounting services for a client and billed the client $20,000 for the work. The client is expected to remit payment in February 20x3. Common revenue less expenses for 20x2 netted to $200,000(this amount...

Bandung Corporation began 2020 with a $46,000 balance in the deferred tax liability account. At the...

Bandung Corporation began 2020 with a $46,000 balance in the deferred tax liability account. At the end of 2020, the related cumulative temporary difference amounts to $350,000 and it will reverse evenly over the next 2 years. Pretax accounting income for 2020 is $525,000, the tax rat for all years is 20%, taxable income for 2020 is $405,000. a) Compute income taxes payable for 2020 b) Prepare the journal entry to record income tax expense, deferred income taxes, and income...

Sweet Corporation began 2017 with a $45,000 balance in the Deferred Tax Liability account. At the...

Sweet Corporation began 2017 with a $45,000 balance in the Deferred Tax Liability account. At the end of 2017, the related cumulative temporary difference amounts to $174,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2017 is $354,000, the tax rate for all years is 40%, and taxable income for 2017 is $318,000. Income taxes payable for 2017? $______ B.) Prepare the journal entry to record income tax expense, deferred income taxes, and income...

Delta had a deferred tax asset of $200 million with no valuation allowance on December 31,...

Delta had a deferred tax asset of $200 million with no valuation allowance on December 31, 2020. At the end of 2021, Delta had a deferred tax asset of $230 million before assessing the need for a valuation allowance. For the year 2021, Delta's income taxes payable is $85 million. At the end of 2021, Delta determined that it was more likely than not that 20% of its deferred tax assets will not be realized. What amount should Delta report...

Discuss the situations that will result in a deferred tax liability and a deferred tax asset....

Discuss the situations that will result in a deferred tax liability and a deferred tax asset. Provide an example of each. Prepare a journal entry for your examples. Discuss how deferred liabilities affect the income statement.

Habiby, Inc., began operations in 2018 and has the following income and expenses for 2018 through...

Habiby, Inc., began operations in 2018 and has the following income and expenses for 2018 through 2021. 2018 2019 2020 2021 Income $180,000 $300,000 $320,000 $320,000 Expenses (280,000) (150,000) (400,000) (220,000) Operating Income $(100,000) $150,000 $(80,000) $100,000 a. What is the amount of tax that Habiby should pay each year? If an amount is zero, enter "0". 2018 $ 2019 $ 2020 $ 2021 $ b. How much would Habiby have paid in tax if the old NOL rules were...

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....

Subjects