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Temporary Difference
Temporary difference refers to the difference of one income recognized by the tax rules and accounting rules of a company in different periods. Consequently the difference between the amount of assets and liabilities reported in the financial reports and the amount of assets and liabilities as per the company’s tax records, is known as temporary difference.
Deferred tax account shows the amount of reconciliation, which occurs due to the difference between the income tax expense account and the income tax payable account.
When the Income Tax Expense account i.e. the estimated income tax amount is more than the outstanding amount of income tax i.e. the Income Tax Payable account, the difference is to be debited to Deferred Tax Asset account.
When the Income Tax Expense account i.e. the estimated income tax amount is less than the outstanding amount of income tax i.e. the Income Tax Payable account, the difference is to be credited to Deferred Tax Liability account.
To prepare: The appropriate
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Chapter 16 Solutions
GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
- LO.5 Beige Corporation has a fiscal year ending April 30. For the year ending April 30, 2018, Beige generated taxable income of 1,200,000. What is Beige Corporations tax liability for this period?arrow_forwardBlossom Company has the following cumulative taxable temporary differences: 12/31/22 $3520000 12/31/21 $2500000 The tax rate enacted for 2022 is 30%, while the tax rate enacted for future years is 20%. Taxable income for 2022 is $6300000 and there are no permanent differences. Blossom's pretax financial income for 2022 is O $7320000. O $5280000. O $2780000. O $9820000.arrow_forward10. Sheridan Corp. prepared the following reconciliation of income per books with income per tax return for the year ended December 31, 2021: Book income before income taxes $ 2630000 Add temporary difference Construction contract revenue which will reverse in 2022 233000 Deduct temporary difference Depreciation expense which will reverse in equal amounts in each of the next four years ( 943200) Taxable income $ 1919800 Sheridan's effective income tax rate is 25% for 2021. What amount should Sheridanreport in its 2021 income statement as the current provision for income taxes? A) $ 479950 B) $ 657500 C) $ 715750 D) $ 58250arrow_forward
- Bryan Company estimated a loss of $30,000 that was included in its income for this year. This amount will not be included in taxable income until next year. The enacted tax rate is 20% this year, but will be 28% next year. What amount should the company report in this year’s balance sheet as a deferred tax asset? $30,000 $6000 $8400 zeroarrow_forwardProblem 16-8 (Algo) Multiple differences; taxable income given; two years; balance sheet classification; change in tax rate [LO16-1, 16-2, 16-3, 16-5, 16-6, 16-8] Skip to question [The following information applies to the questions displayed below.] Arndt, Inc. reported the following for 2021 and 2022 ($ in millions): 2021 2022 Revenues $ 936 $ 1,028 Expenses 792 848 Pretax accounting income (income statement) $ 144 $ 180 Taxable income (tax return) $ 108 $ 214 Tax rate: 25% Expenses each year include $54 million from a two-year casualty insurance policy purchased in 2021 for $108 million. The cost is tax deductible in 2021. Expenses include $2 million insurance premiums each year for life insurance on key executives. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2021 and 2022 were $55 million and $71 million, respectively. Subscriptions included in 2021 and…arrow_forwardProblem 16-8 (Algo) Multiple differences; taxable income given; two years; balance sheet classification; change in tax rate [LO16-1, 16-2, 16-3, 16-5, 16-6, 16-8] Skip to question [The following information applies to the questions displayed below.] Arndt, Inc. reported the following for 2021 and 2022 ($ in millions): 2021 2022 Revenues $ 936 $ 1,028 Expenses 792 848 Pretax accounting income (income statement) $ 144 $ 180 Taxable income (tax return) $ 108 $ 214 Tax rate: 25% Expenses each year include $54 million from a two-year casualty insurance policy purchased in 2021 for $108 million. The cost is tax deductible in 2021. Expenses include $2 million insurance premiums each year for life insurance on key executives. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2021 and 2022 were $55 million and $71 million, respectively. Subscriptions included in 2021 and…arrow_forward
- Exercise 19.8 (Two Temporary Differences, One rate, 3 years). Button Company has the following two temporary differences between its income tax expense and income taxes payable. 2020 2021 2022 Pretax Financial Income $840,000 $910,000 $945,000 Excess Depreciation Expense on tax Return (30,000) (40,000) (10,000) Excess Warranty Expense in Financial Income 20,000 10,000 8,000 Taxable Income $830,000 $880,000 $943,000 The income tax rate is 20% for all years. Instructions: a) Assuming there were no temporary differences prior to 2020, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020,2021, and 2022. b) Indicate how deferred taxes will be reported on the 2022 balance sheet. Button’s product warranty is for 12 months. Deferred tax asset ( $ 0 + $ 0 + $ 0 )..............................$ 0 Deferred tax liability ( $ 0 + $ 0 + $ 0…arrow_forwardn 20X6, CICO has unrecognized tax losses of $500, 000. In 20X7, the company has additional losses of $100, 000. However, the assessment is that $250, 000 of losses will probably be realized in the future. The current tax rate is 30% and the enacted rate of 20X8 is 28%. What is the entry required in 20X7. Multiple Choice a) Dr. Deferred tax asset $30, 000; Cr. Income tax expense (recovery) $30, 000 b) Dr. Deferred tax asset $70, 000; Cr. Income tax expense (recovery) $70, 000 c) Dr. Deferred tax asset $77, 000; Cr. Income tax expense (recovery) $77, 000 d) Dr. Deferred tax asset $70, 000; Cr. Retained earnings $70, 000arrow_forward1. Pine Corp.'s books showed pretax income of P800,000 for the PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL 1. Pine Corp.'s books showed pretax income of P800,000 for the year ended December 31, 20x1. In the computation of federal income taxes, the, following data were considered: Gain on an involuntary conversion (expropriation) Depreciation deducted for tax purposes in excess of depreciation deducted for book Estimated tax payments during 20x1 Le in 350,000 in purposes 50,000 70,000 Income tax rate 30% What amount should Pine report as its current income tax liability on its December 31, 20x1, balance sheet? a. 50,000 b. 65,000 с. 120,000 d. 135,000 (AICPA)arrow_forward
- I need help with required 2 please. Problem 16-8 (Algo) Multiple differences; taxable income given; two years; balance sheet classification; change in tax rate [LO16-1, 16-2, 16-3, 16-5, 16-6, 16-8] [The following information applies to the questions displayed below.] Arndt, Inc. reported the following for 2021 and 2022 ($ in millions): 2021 2022 Revenues $ 936 $ 1,028 Expenses 792 848 Pretax accounting income (income statement) $ 144 $ 180 Taxable income (tax return) $ 108 $ 214 Tax rate: 25% Expenses each year include $54 million from a two-year casualty insurance policy purchased in 2021 for $108 million. The cost is tax deductible in 2021. Expenses include $2 million insurance premiums each year for life insurance on key executives. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2021 and 2022 were $55 million and $71 million, respectively. Subscriptions…arrow_forward10. On January 1, 20x1, Sunrise Co. has a deferred tax asset of P120,000 arising solely from an operating loss carryforward. Sunrise Co. is subject to an income tax rate of 30%. For the year 20x1, Sunrise expects to earn profit of P1,200,000 before tax and before the loss carryforward. Sunrise Co. earns profits before tax of P350,000, P200,000 and P400,000, in the first, second and third quarters of 20x1. How much are the income tax expenses recognized in the interim periods? 1st quarter 3rd quarter 90,000 80,000 80,000 2nd quarter a. 60,000 b. 70,000 40,000 40,000 c. 80,000 d. 80,000 50,000 50,000 90,000arrow_forwardProblem 06-06 (Algo) [LO 6-5] Besito Company, a calendar year, cash basis taxpayer, leases lawn and garden equipment. During December, it received the following cash payments. To what extent does each payment represent current taxable income to Besito? Required: a. $1,092 repayment of a loan from an employee. Besito loaned $1,050 to the employee six months ago, and the employee repaid the loan with interest. b. $1,150 deposit from a customer who rented mechanical equipment. Besito must return the entire deposit when the customer returns the undamaged equipment. c. $11,100 short-term loan from a local bank. Besito gave the bank a written note to repay the loan in one year percent interest. d. $814 prepaid rent from the customer described in part (b). The rent is $11 per day for the 74-day period from December 17 through February 28. For all requirements, leave no cells blank - be certain to enter "0" wherever required. a. Taxable income b. Taxable income c. Taxable income d. Taxable…arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningIndividual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
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