Question

Refer to the information for Raman Limited in E18-4. Following the year ended December 31, 2012, Raman continued to actively trade its securities investments until the end of its 2013 fiscal year, when it was forced to sell several of them at a loss, because of the need for cash for operations. By December 31, 2013, the portfolio of investments contained a single investment in shares, which was purchased in November 2013. Raman Limited had paid $42,000 for these remaining shares. At December 31, 2013, the shares' market value was $40,000. Income before income taxes for Raman was $120,000 for the year ended December 31, 2013. There are no other permanent or timing differences in arriving at the taxable income for Raman Limited for the fiscal year ending December 31, 2013. The enacted tax rate for 2013 and future years is 42%.
Instructions
(a) Prepare the necessary journal entry for Raman Limited to accrue the unrealized loss on its securities investments.
(b) Explain the tax treatment that should be given to the unrealized accrued loss that Raman Limited reported on its income statement.
(c) Calculate the future income tax balance at December 31, 2013.
(d) Calculate the current income tax for the year ending December 31, 2013.
(e) Prepare the journal entries to record income taxes for 2013. Assume that there have been no entries to the ending balances of future taxes reported at December 31, 2012.
(f) Prepare the income statement for 2013, beginning with the line "Income before income taxes."
(g) Provide the balance sheet presentation for any resulting future tax balance sheet account at December 31, 2013. Be clear on the classification you have chosen and explain your choice.
(h) Prepare the journal entries in part (e) under the assumption that, late in 2013, the income tax rate changed to 40% for 2014 and subsequent years.
(i) Repeat the balance sheet presentation in part (g) assuming Raman reports under the PE GAAP future income taxes method and has chosen the fair value through net income model to account for its securities investments.


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  • CreatedAugust 23, 2015
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