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Intermediate Accounting Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield Chapter 19. Accounting for Income Taxes Solution Manual
Typology: Exercises
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Topics Questions
Brief Exercises Exercises Problems
Concepts for Analysis
1, 14 1, 2, 3, 4, 5, 10, 16, 18, 19
1, 2, 3, 4, 8
3, 4, 12, 13 4, 5, 6, 7 2, 3, 4 3, 4, 5
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10
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7, 18 7 7, 12, 13, 23, 24, 25
Learning Objectives Questions
Brief Exercises Exercises Problems
Concepts for Analysis
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11
3, 4, 5, 6, 7, 8, 9, 10
1, 2, 3, 4, 5, 6, 7, 8, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22
1, 2, 3, 4, 6, 7, 8, 9
1, 2, 6, 7
12, 13, 14, 15
1, 2, 3, 5, 6, 7, 8, 10, 11
1, 2, 3, 4, 5, 6, 7, 8, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20
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16, 17, 18 12, 13, 14 21, 22, 23, 24, 25
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15, 19 4, 15 9, 14, 19, 20 1, 3, 4, 6, 7, 8, 9
3, 4
ASSIGNMENT CHARACTERISTICS TABLE (Continued)
Item Description
Level of Difficulty
Time (minutes)
P19-1 Three differences, no beginning deferred taxes, multiple rates. Complex 40–
P19-2 One temporary difference, tracked for 4 years, one permanent difference, change in rate.
Complex 50–
P19-3 Second year of depreciation difference, two differences, single rate, discontinued operations.
Complex 40–
P19-4 Permanent and temporary differences, one rate. Moderate 20– P19-5 (^) NOL without valuation account. Simple 20–
P19-6 Two differences, two rates, future income expected. Moderate 20–
P19-7 One temporary difference, tracked 3 years, change in rates, income statement presentation.
Complex 45–
P19-8 Two differences, 2 years, compute taxable income and pretax financial income.
Complex 40–
P19-9 Five differences, compute taxable income and deferred taxes, draft income statement.
Complex 40–
CA19-1 Objectives and principles for accounting for income taxes. Simple 15–
CA19-2 Basic accounting for temporary differences. Moderate 20–
CA19-3 Identify temporary differences and classification criteria. Complex 20–
CA19-4 Accounting and classification of deferred income taxes. Moderate 20–
CA19-5 Explain computation of deferred tax liability for multiple tax rates. Complex 20–
CA19-6 Explain future taxable and deductible amounts, how carryback and carryforward affects deferred taxes.
Complex 20–
CA19-7 Deferred taxes, income effects. Moderate 20–
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
Examples of temporary differences are: (1) Gross profit or gain on installment sales reported for financial reporting purposes at the date of sale and reported in tax returns when later collected. (2) Depreciation for financial reporting purposes is less than that deducted in tax returns in early years of assets’ lives because of using an accelerated depreciation method for tax purposes. (3) Rent and royalties taxed when collected, but deferred for financial reporting purposes and recognized as when the performance obligation is satisfied in later periods. (4) Unrealized gains or losses recognized in income for financial reporting purposes but deferred for tax purposes.
LO: 1, Bloom: K, Difficulty: Simple, Time: 5-7, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 1, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
LO: 1, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
Questions Chapter 19 (Continued)
Examples of permanent differences are: (1) interest received on municipal obligations (such interest is included in pretax financial income but is not included in taxable income), (2) premiums paid on officers’ life insurance policies in which the company is the beneficiary (such premiums are not allowable expenses for determining taxable income but are expenses for determining pretax financial income), and (3) fines and expenses resulting from a violation of law. Item (3), like item (2), is an expense which is not deductible for tax purposes.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
Deferred Tax Liability ............................................................................... 20, Income Tax Expense ....................................................................... 20,
LO: 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
LO: 2, 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
Questions Chapter 19 (Continued)
For financial reporting purposes, the benefits of a net operating loss carryback are recognized in the loss year. The benefits of an operating loss carryforward are recognized as a deferred tax asset in the loss year. If it is more likely than not that the asset will be realized, the tax benefit of the loss is also recognized by a credit to Income Tax Expense on the income statement. Conversely, if it is more likely than not that the loss carryforward will not be realized in future years, then an allowance account is established in the loss year and no tax benefit is recognized on the income statement of the loss year.
LO: 3, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 3, Bloom: K, Difficulty: Moderate, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 4, Bloom: K, Difficulty: Moderate, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
Book value of warranty liability .................................................... $105, Tax basis of warranty liability....................................................... –0– Cumulative temporary difference at 12/31/17 .............................. 105, Tax rate .......................................................................................... X 40% 12/31/17 deferred tax asset ........................................................... $ 42,
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
Deferred tax asset, 12/31/18.......................................................... $59, Deferred tax asset, 12/31/17.......................................................... 30, Deferred tax benefit for 2018 ........................................................ (29,000) Current tax expense for 2018 ....................................................... 61, Total income tax expense for 2018 .............................................. $32,
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
Income Tax Expense ....................................................... 60, Allowance to Reduce Deferred Tax Asset to Expected Realizable Value .............................. 60,
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
BRIEF EXERCISE 19-
Income before income taxes .......................................... $195, Income tax expense Current...................................................................... $48, Deferred .................................................................... 30,000 78, Net income ....................................................................... $117,
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
BRIEF EXERCISE 19-
Income Tax Expense ....................................................... 71, Income Taxes Payable ($148,000* X 45%) .............. 66, Deferred Tax Liability ($10,000 X 45%) ................... 4,
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
Year Future taxable amount X Tax Rate = Deferred tax liability 2018 $ 42,000 34% $ 14, 2019 244,000 34% 82, 2020 294,000 40% 117, $214,
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
Income Tax Expense ...................................................... 120, Deferred Tax Liability ($2,000,000 X 6%) ............... 120,
LO: 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
BRIEF EXERCISE 19-
Income Tax Refund Receivable ..................................... 144, Benefit Due to Loss Carryback $97,500 + [($480,000 – $325,000) X 30%] ........... 144,
LO: 3, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
BRIEF EXERCISE 19-
Income Tax Refund Receivable ($350,000 X .40) ......... 140, Benefit Due to Loss Carryback .............................. 140,
Deferred Tax Asset ($500,000 – $350,000) X .40........... 60, Benefit Due to Loss Carryforward ......................... 60,
LO: 3, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
EXERCISE 19-1 (15–20 minutes)
(a) Pretax financial income for 2017 $300, Temporary difference resulting in future taxable amounts in 2018 (55,000) in 2019 (60,000) in 2020 (65,000) Taxable income for 2017 $120,
Taxable income for 2017 $120, Enacted tax rate 30% Income taxes payable for 2017 $ 36,
(b) Future Years 2018 2019 2020 Total Future taxable (deductible) amounts $55,000 $60,000 $65,000 $180, Tax rate 30% 30% 30% Deferred tax liability (asset) $16,500 $18,000 $19,500 $ 54,
Deferred tax liability at the end of 2017 $54, Deferred tax liability at the beginning of 2017 –0– Deferred tax expense for 2017 (increase in deferred tax liability) 54, Current tax expense for 2017 (Income taxes payable) 36, Income tax expense for 2017 $90,
Income Tax Expense ............................................... 90, Income Taxes Payable ..................................... 36, Deferred Tax Liability....................................... 54,
(c) Income before income taxes $300, Income tax expense Current $36, Deferred 54,000 90, Net income $210,
Note: The current/deferred tax expense detail can be presented in the notes to the financial statements.
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 15-20, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
EXERCISE 19-2 (15–20 minutes)
(a) Pretax financial income for 2016 $300, Excess of tax depreciation over book depreciation (40,000) Rent received in advance 20, Taxable income $280,
(b) Income Tax Expense ............................................. 120, Deferred Tax Asset ................................................ 8,000* Income Taxes Payable ($280,000 X .40) ........ 112, Deferred Tax Liability ..................................... 16,000**
Temporary Difference
Future Taxable (Deductible) Amounts
Tax Rate
Deferred Tax
(Asset) Liability **Depreciation ($40,000 40% $16, *Unearned rent ( (20,000) 40% $(8,000) $(8,000) $16,
(c) Income Tax Expense ............................................. 134,000* Deferred Tax Liability ($10,000 X .40) ................... 4, Income Taxes Payable ($325,000 X .40) ........ 130, Deferred Tax Asset ($20,000 X .40) ............... 8,
Temporary Difference
Future Taxable (Deductible) Amounts
Tax Rate
Deferred Tax
(Asset) Liability **Depreciation ($30,000 40% $12, *Unearned rent 40% $ 0 $ 0 $12,
Deferred tax liability at the beginning of 2017 $16, Deferred tax liability at the end of 2017 12, Deferred tax benefit for 2017 (decrease required in deferred tax liability) $ (4,000) Deferred tax asset at the end of 2017 0 Deferred tax asset at the beginning of 2017 8, Deferred tax expense for 2017 (decrease required in deferred tax asset) 8, Current tax expense for 2017 130, Income tax expense for 2017 $134,
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 15-20, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
EXERCISE 19-4 (15–20 minutes)
(a) Pretax financial income for 2017 $70, Excess depreciation per tax return (16,000) Excess rent collected over rent earned 22, Nondeductible fines 11, Taxable income $87,
Taxable income $87, Enacted tax rate 30% Income taxes payable $26,
(b) Income Tax Expense ............................................... 24, Deferred Tax Asset .................................................. 6, Income Taxes Payable ..................................... 26, Deferred Tax Liability ....................................... 4,
Temporary Difference
Future Taxable (Deductible) Amounts
Tax Rate
Deferred Tax (Asset) Liability Depreciation ($16,000 30% $4, Unearned rent ( (22,000) 30% $(6,600) Totals $ (6,000) $(6,600) $4,800*
*Because of a flat tax rate, these totals can be reconciled: $(6,000) X 30% = $(6,600) + $4,800.
Deferred tax liability at the end of 2017 $4, Deferred tax liability at the beginning of 2017 0 Deferred tax expense for 2017 (increase required in deferred tax liability) $4,
Deferred tax asset at the end of 2017 $(6, Deferred tax asset at the beginning of 2017 0 Deferred tax benefit for 2017 (increase required in deferred tax asset) $(6,600)
Deferred tax expense for 2017 $ 4, Deferred tax benefit for 2017 (6,600) Net deferred tax benefit for 2017 (1,800) Current tax expense for 2017 (Income taxes payable) 26, Income tax expense for 2017 $24,
EXERCISE 19-4 (Continued)
(c) Income before income taxes $70, Income tax expense Current $26, Deferred (1,800) 24, Net income $45,
Note: The details on the current/deferred tax expense may be presented in a note to the financial statements.
(d) $24,300^ = 34.7% effective tax rate for 2017. $70,
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 15-20, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
EXERCISE 19-5 (15–20 minutes)
(a) Taxable income $95, Enacted tax rate 40% Income taxes payable $38,
(b) Income Tax Expense ............................................... 80, Deferred Tax Asset .................................................. 14, Income Taxes Payable ..................................... 38, Deferred Tax Liability....................................... 56,
Temporary Difference
Future Taxable (Deductible) Amounts
Tax Rate
Deferred Tax (Asset) Liability First one ($240,000 40% $96, Second one ( (35,000) 40% $(14,000) Totals $205,000 $(14,000) $96,
*Because of a flat tax rate, these totals can be reconciled: $205,000 X 40% = $(14,000) + $96,000.
Deferred tax liability at the end of 2017 $96, Deferred tax liability at the beginning of 2017 40, Deferred tax expense for 2017 (increase required in deferred tax liability) $56,
Deferred tax asset at the end of 2017 $(14, Deferred tax asset at the beginning of 2017 –0– Deferred tax benefit for 2017 (increase required in deferred tax asset) $(14,000)
EXERCISE 19-6 (10–15 minutes)
(a) (2) (e) (2) (i) (3)* (b) (1) (f) (2) (j) (1) (c) (3) (g) (3) (k) (1) (d) (1) (h) (3)
*When the cost method is used for financial reporting purposes, the dividends are recognized in the income statement in the period they are received, which is the same period they be must be reported on the tax return. However, depending on the level of ownership by the investor, 70% or 80% of the dividends received from other U.S. corporations may be excluded from taxation because of a “dividends received deduction.” These tax-exempt dividends create a permanent difference.
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 10-15, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
EXERCISE 19-7 (10–15 minutes)
(a) greater than (b) $190,000 = ($76,000 divided by 40%) (c) are not (d) less than (e) benefit; $15, (f) $3,500 = [($100,000 X 40%) – $36,500] (g) debit (h) $59,000 = ($82,000 – $23,000) (i) more likely than not; will not be (j) benefit
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 10-15, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
EXERCISE 19-8 (10–15 minutes)
(a) 2017
Income Tax Expense .............................................. 336, Deferred Tax Asset ($20,000 X 40%) ..................... 8, Deferred Tax Liability ($30,000 X 40%).......... 12, Income Taxes Payable ($830,000 X 40%) ...... 332,
Income Tax Expense .............................................. 364, Deferred Tax Asset ($10,000 X 40%) ..................... 4, Deferred Tax Liability ($40,000 X 40%).......... 16, Income Taxes Payable ($880,000 X 40%) ...... 352,
Income Tax Expense .............................................. 378, Deferred Tax Asset ($8,000 X 40%) ....................... 3, Deferred Tax Liability ($10,000 X 40%).......... 4, Income Taxes Payable ($943,000 X 40%) ...... 377,
(b)
Deferred tax asset ($8,000 + $4,000 + $3,200) $15, Deferred tax liability ($12,000 + $16,000 + $4,000) 32, Net non-current liability (deferred tax liability) $16,
(c)
Pretax financial income $945, Income tax expense Current $377, Deferred ($4,000 – $3,200) 800 378, Net Income $567,
Note: The details on the current/deferred tax expense can be disclosed in the notes to the financial statements.
LO: 1, 2, Bloom: AP, Difficulty: Simple, Time: 10-15, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None