Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Textbook Question
Chapter 2, Problem 1AIC
Starbucks
The financial statements of Starbucks Corporation are presented in Exhibits 1.26–1.28 (see pages 74–77). The income tax note to those financial statements reveals the information regarding income taxes shown in Exhibit 2.18.
REQUIRED
Assuming that Starbucks had no significant permanent differences between book income and taxable income, did income before taxes for financial reporting exceed or fall short of taxable income for 2012? Explain.
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During the 2nd quarter of 2016 (June 2016 – August 2016) Ping-Pong Industries (located at 535 Main Street, Brentwood, NY 11717; Sales Tax ID# 44455566677) had total sales of $126,000. Of this amount, $21,000 were non-taxable. All of the sales were made in Suffolk County, and the company does not report gross credit card and debit card sales. This is not the final sales tax return for the company, and the company pays the sales tax amount that is due when filing the form. The company does not use a third-party designee, and prepares the sales tax forms on its own. The forms are signed by Alton Thompson, the CEO of the company (phone number: 631-555-8476, no e-mail address), and are filed on the due date for the form.
Based on the instructions that have been provided for Form ST-100, complete Form ST-100 of Ping-Pong Industries for the 2nd quarter of the year. Please do all the pages in the form, if needed.
https://www.tax.ny.gov/pdf/current_forms/st/st100.pdf
Vhembe Limited manufactures and sells lawnmowers online to the public. The company produced a profit before tax of R3 800 000 for the year ended 28 February 2021.
Included in the profit before tax are the following items:
* Dividend income of R200 000 which is exempt from income tax* Donations of R100 000 which is non-deductible
The income tax rate for the financial year is 30% and there was no temporary difference observed.
Required:Calculate current income tax for the year ended 28 February 2021.
Lewes Company appropriately uses the installment sales method for tax purposes and the accrual method for revenue recognition for accounting purposes. Pertinent data at December 31, 2016, the close of the first year of operations, are as follows:
Revenue Recognized
Revenue Recognized
Customer
for Accounting Purposes
for Tax Purposes
Lowe's Builders
$200,000
$100,000
Top Down Plumbing
500,000
350,000
Glass Plus Windows
600,000
350,000
Lewes's tax rate is 30%. What amount should be included in the deferred tax account at December 31, 2016 for these installment sales?
Chapter 2 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 2 - Prob. 1QECh. 2 - Asset Valuation and Income Recognition. Asset...Ch. 2 - Trade-Offs among Acceptable Accounting...Ch. 2 - Income Flows versus Cash Flows. The text states,...Ch. 2 - Prob. 5QECh. 2 - Prob. 6QECh. 2 - Prob. 7QECh. 2 - Prob. 8QECh. 2 - Computation of Income Tax Expense. A firms income...Ch. 2 - Computation of Income Tax Expense. A firms income...
Ch. 2 - Costs to Be Included in Historical Cost Valuation....Ch. 2 - Effect of Valuation Method for Nonmonetary Asset...Ch. 2 - Prob. 13PCCh. 2 - Prob. 14PCCh. 2 - Prob. 15PCCh. 2 - Deferred Tax Assets. Components of the deferred...Ch. 2 - Interpreting Income Tax Disclosures. The financial...Ch. 2 - Interpreting Income Tax Disclosures. Prepaid Legal...Ch. 2 - Interpreting Income Tax Disclosures. The financial...Ch. 2 - Analyzing Transactions. Using the analytical...Ch. 2 - Prob. 21PCCh. 2 - Starbucks The financial statements of Starbucks...Ch. 2 - Prob. 1BICCh. 2 - Prob. 1CICCh. 2 - Prob. 1DICCh. 2 - Prob. 1EICCh. 2 - Prob. 1FICCh. 2 - Starbucks The financial statements of Starbucks...
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- Interpreting Income Tax Disclosures. The financial statements of ABC Corporation, a retail chain, reveal the information for income taxes shown in Exhibit 2.15. REQUIRED a. Assuming that ABC had no significant permanent differences between book income and taxable income, did income before taxes for financial reporting exceed or fall short of taxable income for 2013? Explain. b. Did income before taxes for financial reporting exceed or fall short of taxable income for 2014? Explain. c. Will the adjustment to net income for deferred taxes to compute cash flow from operations in the statement of cash flows result in an addition or a subtraction for 2013? For 2014? d. ABC does not contract with an insurance agency for property and liability insurance; instead, it self-insures. ABC recognizes an expense and a liability each year for financial reporting to reflect its average expected long-term property and liability losses. When it experiences an actual loss, it charges that loss against the liability. The income tax law permits self-insured firms to deduct such losses only in the year sustained. Why are deferred taxes related to self-insurance disclosed as a deferred tax asset instead of a deferred tax liability? Suggest reasons for the direction of the change in amounts for this deferred tax asset between 2012 and 2014. e. ABC treats certain storage and other inventory costs as expenses in the year incurred for financial reporting but must include these in Inventory for tax reporting. Why are deferred taxes related to inventory disclosed as a deferred tax asset? Suggest reasons for the direction of the change in amounts for this deferred tax asset between 2012 and 2014. f. Firms must recognize expenses related to postretirement health care and pension obligations as employees provide services, but claim an income tax deduction only when they make cash payments under the benefit plan. Why are deferred taxes related to health care obligation disclosed as a deferred tax asset? Why are deferred taxes related to pensions disclosed as a deferred tax liability? Suggest reasons for the direction of the change in amounts for these deferred tax items between 2012 and 2014. g. Firms must recognize expenses related to uncollectible accounts when they recognize sales revenues, but claim an income tax deduction when they deem a particular customers accounts uncollectible. Why are deferred taxes related to this item disclosed as a deferred tax asset? Suggest reasons for the direction of the change in amounts for this deferred tax asset between 2012 and 2014. h. ABC uses the straight-line depreciation method for financial reporting and accelerated depredation methods for income tax purposes. Why are deferred taxes related to depreciation disclosed as a deferred tax liability? Suggest reasons for the direction of the change in amounts for this deferred tax liability between 2012 and 2014.arrow_forwardInterpreting Income Tax Disclosures. The financial statements of Nike, Inc., reveal the information regarding income taxes shown in Exhibit 2.17. REQUIRED a. Assuming that Nike had no significant permanent differences between book income and taxable income, did income before taxes for financial reporting exceed or fall short of taxable income for 2007? Explain. b. Did book income before taxes for financial reporting exceed or fall short of taxable income for 2008? Explain. c. Will the adjustment to net income for deferred taxes to compute cash flow from operations in the statement of cash flows result in an addition or a subtraction for 2008? d. Nike recognizes provisions for sales returns and doubtful accounts each year in computing income for financial reporting. Nike cannot claim an income tax deduction for these returns and doubtful accounts until customers return goods or accounts receivable become uncollectible. Why do the deferred taxes for returns and doubtful accounts appear as deferred tax assets instead of deferred tax liabilities? Suggest possible reasons why the deferred tax asset for sales returns and doubtful accounts increased between 2007 and 2008. e. Nike recognizes an expense related to deferred compensation as employees render services but cannot claim an income tax deduction until it pays cash to a retirement fund. Why do the deferred taxes for deferred compensation appear as a deferred tax asset? Suggest possible reasons why the deferred tax asset increased between 2007 and 2008. f. Nike states that it recognizes a valuation allowance on deferred tax assets related to foreign loss carryforwards because the benefits of some of these losses will expire before the firm realizes the benefits. Why might the valuation allowance have decreased slightly between 2007 and 2008? g. Nike reports a large deferred tax liability for Intangibles. In another footnote, Nike states, During the fourth quarter ended May 31, 2008 the Company completed the acquisition of Umbro Plc (Umbro). As a result, 378.4 million was allocated to unamortized trademarks, 319.2 million was allocated to goodwill and 41.1 million was allocated to other amortized intangible assets consisting of Umbros sourcing network, established customer relationships and the United Soccer League Franchise. Why would Nike report a deferred tax liability associated with this increase in intangible assets on the balance sheet? h. Nike recognizes its share of the earnings of foreign subsidiaries each year for financial reporting but recognizes income from these investments for income tax reporting only when it receives a dividend. Why do the deferred taxes related to these investments appear as a deferred tax liability? i. Why does Nike recognize both deferred tax assets and deferred tax liabilities related to investments in foreign operations?arrow_forwardStarbucks The financial statements of Starbucks Corporation are presented in Exhibits 1.26-1.28 (see pages 74-77). The income tax note to those financial statements reveals the information regarding income taxes shown in Exhibit 2.18. REQUIRED Starbucks uses the straight-line depreciation method for financial reporting and accelerated depreciation for income tax reporting. Like most firms, the largest deferred tax liability is for property, plant, and equipment (depreciation). Explain how depreciation leads to a deferred tax liability. Suggest possible reasons why the amount of the deferred tax liability related to depreciation increased between 2011 and 2012.arrow_forward
- Analyzing Coca-Colas Income Tax Disclosures Obtain The Coca-Cola Companys 2017 annual report either using the Investor Relations portion of its website (do a web search for Coca-Cola investor relations) or go to http://www.sec.gov and click Search for company filings under filings and Forms (EDGAR). Required: 1. What was the total income tax expense related to income from continuing operations before income taxes for 2017? How much of this was current? How much was deferred? 2. What were the total gross deferred tax assets at the end of 2017? Total deferred tax liabilities? Net deferred tax liability? 3. How much was the noncurrent deferred tax liability at the end of 2017, and where was it reported? 4. How much were the operating loss carryforwards at the end of 2017? Over what time periods must these be utilized?arrow_forwardThe following information pertains to XYZ Inc Year Taxable Income(loss) tax rate taxes paid 2009 $100,000 25% $25,000 2010 $250,000 30% $75,000 2011 $360,000 22% $79,2000 2012 $400,000 26% $104,000 2013 $500,000 24% $120,000 2014 $(600,000) 25% _ Assuming that XYZ has a policy of tax refund maximization , how much would the company be able to recover in taxes through the use of its 2014 tax loss?arrow_forwardBDO Company reported the following on December 31, 2015: Income before tax for accounting purposes P12,000,000; Rent expense for financial accounting purposes is P2,000,000 Rent expense for tax purposes is P1,000,000; Tax depreciation is P3,200,000 Accounting depreciation is P1,700,000; Loss on a case incurred but not yet paid so tax-deductible in the future is P700,000. The tax rate is 30%. Question: What is the amount of deferred tax asset? What is the net income after tax?arrow_forward
- BDO Company reported the following on December 31, 2015: Income before tax for accounting purposes P12,000,000; Rent expense for financial accounting purposes is P2,000,000 Rent expense for tax purposes is P1,000,000; Tax depreciation is P3,200,000 Accounting depreciation is P1,700,000; Loss on a case incurred but not yet paid so tax-deductible in the future is P700,000. The tax rate is 30%. Question: What is the amount of taxable temporary difference? What is the current tax expense?arrow_forwardBDO Company reported the following on December 31, 2015: Income before tax for accounting purposes P12,000,000; Rent expense for financial accounting purposes is P2,000,000 Rent expense for tax purposes is P1,000,000; Tax depreciation is P3,200,000 Accounting depreciation is P1,700,000; Loss on a case incurred but not yet paid so tax-deductible in the future is P700,000. The tax rate is 30%. What is the net income after tax?arrow_forward
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