In 2025, Ivanhoe Company discovered an error while preparing its financial statements. A building constructed at the beginning of 2024 costing $1350000 has not been depreciated. The estimated useful life of the building is 30 years with no salvage value. Straight- line depreciation is used. Ivanhoe also used straight-line depreciation for tax purposes and properly included depreciation on its tax return. Income tax payable was also reported correctly at a tax rate of 20%. Income before tax and depreciation expenses in 2025 was $450000 What would be the 2025 net income if depreciation had been recorded properly? Ⓒ$324000 O $414000 O$405000 O $450000

In 2025, Ivanhoe Company discovered an error while preparing its financial statements. A building constructed at the beginning of 2024 costing $1350000 has not been depreciated. The estimated useful life of the building is 30 years with no salvage value. Straight- line depreciation is used. Ivanhoe also used straight-line depreciation for tax purposes and properly included depreciation on its tax return. Income tax payable was also reported correctly at a tax rate of 20%. Income before tax and depreciation expenses in 2025 was $450000 What would be the 2025 net income if depreciation had been recorded properly? Ⓒ$324000 O $414000 O$405000 O $450000

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter18: Accounting For Income Taxes

Section: Chapter Questions

Problem 5MC: At the beginning of 2019, Conley Company purchased an asset at a cost of 10,000. For financial...

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At the beginning of 2019, Conley Company purchased an asset at a cost of 10,000. For financial reporting purposes, the asset has a 4-year life with no residual value and is depreciated by the straight-line method beginning in 2019. For tax purposes, the asset is depreciated under MACRS using a 5-year recovery period. Prior to 2019, Conley had no deferred tax liability or asset. The difference between depreciation for financial reporting purposes and income tax purposes is the only temporary difference between pretax financial income and taxable income. The current income tax rate is 30%, and no change in the tax rate has been enacted for future years. In 2019 and 2020, taxable income will be higher or lower than financial income by what amount?
Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2019. Gross receipts were 300,000. The following expenses were incurred and paid as indicated: Because the coliseum was not scheduled to be used again until January 15, the company with which Duck had contracted did not perform the cleanup until January 810, 2020. a. Calculate Ducks net income from the concert for tax purposes for 2019. b. Using the present value tables in Appendix H, what is the true cost to Duck if it had to defer the 100,000 deduction for the performers until 2020? Assume a 5% discount rate and a 21% marginal tax rate in 2019 and 2020.
Gray Companys financial statements showed income before income taxes of 4,030,000 for the year ended December 31, 2020, and 3,330,000 for the year ended December 31, 2019. Additional information is as follows: Capital expenditures were 2,800,000 in 2020 and 4,000,000 in 2019. Included in the 2020 capital expenditures is equipment purchased for 1,000,000 on January 1, 2020, with no salvage value. Gray used straight-line depreciation based on a 10-year estimated life in its financial statements. As a result of additional information now available, it is estimated that this equipment should have only an 8-year life. Gray made an error in its financial statements that should be regarded as material. A payment of 180,000 was made in January 2020 and charged to expense in 2020 for insurance premiums applicable to policies commencing and expiring in 2019. No liability had been recorded for this item at December 31, 2019. The allowance for doubtful accounts reflected in Grays financial statements was 7,000 at December 31, 2020, and 97,000 at December 31, 2019. During 2020, 90,000 of uncollectible receivables were written off against the allowance for doubtful accounts. In 2019, the provision for doubtful accounts was based on a percentage of net sales. The 2020 provision has not yet been recorded. Net sales were 58,500,000 for the year ended December 31, 2020, and 49,230,000 for the year ended December 31, 2019. Based on the latest available facts, the 2020 provision for doubtful accounts is estimated to be 0.2% of net sales. A review of the estimated warranty liability at December 31, 2020, which is included in other liabilities in Grays financial statements, has disclosed that this estimated liability should be increased 170,000. Gray has two large blast furnaces that it uses in its manufacturing process. These furnaces must be periodically relined. Furnace A was relined in January 2014 at a cost of 230,000 and in January 2019 at a cost of 280,000. Furnace B was relined for the first time in January 2020 at a cost of 300,000. In Grays financial statements, these costs were expensed as incurred. Since a relining will last for 5 years, Grays management feels it would be preferable to capitalize and depreciate the cost of the relining over the productive life of the relining. Gray has decided to nuke a change in accounting principle from expensing relining costs as incurred to capitalizing them and depreciating them over their productive life on a straight-line basis with a full years depreciation in the year of relining. This change meets the requirements for a change in accounting principle under GAAP. Required: 1. For the years ended December 31, 2020 and 2019, prepare a worksheet reconciling income before income taxes as given previously with income before income taxes as adjusted for the preceding additional information. Show supporting computations in good form. Ignore income taxes and deferred tax considerations in your answer. The worksheet should have the following format: 2. As of January 1, 2020, compute the retrospective adjustment of retained earnings for the change in accounting principle from expensing to capitalizing relining costs. Ignore income taxes and deferred tax considerations in your answer.
On 1/1/2018, ABC company purchased equipment costing $35, 000 where its useful life was 5 years and the salvage value was 55,000. ABC decided to use the straight-line method in calculating depreciation. In 2020, ABC found out that the accountant recorded wrongly $600 and 5900 for 2018 and 2019 respectively, instead of S6, 000 for each year, for depreciation. Equipment is depreciated for tax purposes using a straight-line method, with a tax rate of 40% The accounting entries in 31/12/2020 for the corrections are: Select one: a. All answers are false b. Accumulated depreciation $10,500 Cumulative effect of corrections of prior period errors $6, 300 Deferred tax Liabilities S4, 200 c. Cumulative effect of corrections of prior period errors $8, 400 Deferred tax Assets $2, 100 Accumulated depreciation $10, 500 Retained earnings S8, 400 Cumulative effect of correction of prior period error S8, 400 d. Cumulative effect of corrections of prior period errors S6, 300 Deferred tax Assets S4, 200…
Holt Co. discovered that in the prior year, it failed to report P40,000 of depreciation related to a newly constructed building. The depreciation was computed correctly for tax purposes. The tax rate for the current year was 20%. How should Holt report the correction in the error in the current year -as an increase in accumulated depreciation of P40,000 -as an increase of depreciation expense of P40,000 -as an increase in depreciation expense of P32,000 -as an increase in accumulated depreciation of P32,000
On January 1, 2021, Save Company discovered that it had incorrectly expensed a P2,100,000 machine purchased on January 1, 2018. The entity estimated the machine's original useful life to be 10 years and the residual value at P100,000. The entity used the straight line method of depreciation and is subject to a 30% income tax rate. In the December 31, 2021 financial statements, what amount should be reported as a prior period error?
In 2020, Bailey Corporation discovered that equipment purchased on January 1, 2018, for $50,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Prepare Bailey's 2020 journal entry to correct the error. Bailey uses straight-line depreciation.
Equipment was purchased on January 2, 2020, for $24,000, but no portion of the cost has been charged to depreciation. The corporation wishes to use the straight-line method for these assets, which have been estimated to have a life of 10 years and no salvage value. What effect does this error have on net income in 2020? What entry is necessary to correct for this error, assuming that the books are not closed for 2020?
Oriole Corporation purchased a machine on January 2, 2020, for $4300000. The machine has an estimated 5-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and the following MACRS amounts will be deducted for tax purposes: 2020 $860000 2023 $494500 2021 1376000 2024 494500 2022 825600 2025 249400 Assuming an income tax rate of 20% for all years, the net deferred tax liability that should be reflected on Oriole's balance sheet at December 31, 2021 be $103200 $73100 $0 $6880
In 2024, internal auditors discovered that PKE Displays, Incorporated, had debited an expense account for the $351,000 cost of equipment purchased on January 1, 2021. The equipment’s life was expected to be five years with no residual value. Straight-line depreciation is used by PKE. Required: Determine the cumulative effect of the error on net income over the three-year period from 2021 through 2023, and on retained earnings by the end of 2023. Prepare the correcting entry, assuming the error was discovered in 2024 before the adjusting and closing entries. (Ignore income taxes.) Assume instead that the equipment was disposed of in 2025 and the original error was discovered in 2026 after the 2025 financial statements were issued. Prepare the correcting entry in 2026.
In 2021, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $350,000 cost of a machine purchased on January 1, 2018. The machine’s useful life was expected to be five years with no residual value. Straight-line depreciation is used by PKE. Ignoring income taxes, what journal entry will PKE use to correct the error?
MJ Limited purchased a machinery for $50,000 for its operations on 1 October 2015 and have been using it for income producing activities. In the current financial year (2019-2020), the machinery broke down and it was replaced with another machinery with the cost of $70,000 which could improve(?) the production, a feature that was not available in previous machinery. explain in detail using relevent tax laws and cases whether this amount of $70,000 is deductible for MJ limited