E19-6 (Identify Temporary or Permanent Differences) Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes.
For each item below, indicate whether it involves: (1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset. (2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability. (3) A 4. The tax rates are 40% for 2010 and 35% for 2011 and subsequent years. 5. Income taxes of $320,000 are due per the tax return for 2010. 6. No deferred taxes existed at the beginning of 2010.
a) Compute taxable income for 2010. b) Compute pretax financial income for 2010. c) Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2010 and 2011. Assume taxable income was $980,000 in 2011. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.) d) Prepare the income tax expense section of the income statement for 2010, beginning with “Income before income taxes.”
P19-3 (Second Year of Depreciation Difference, Two Differences, Single Rate, Extraordinary Item) The following information has been obtained for the Gocker Corporation. 1. Prior to 2010, taxable income and pretax financial income were identical. 2. Pretax financial income is $1,700,000 in 2010 and $1,400,000 in 2011. 3. On January 1, 2010, equipment costing $1,200,000 is purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Hint: Use the half-year convention for tax purposes, as discussed in Appendix 11A.) 4. Interest of $60,000 was earned on tax-exempt municipal obligations in 2011. 5. Included in 2011 pretax financial income is an extraordinary gain of $200,000, which is fully taxable. 6. The tax rate is 35% for all
