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Intermediate Accounting principles and analysis 2nd Edition Terry d. Warfield, jerry j. weygandt, Donald e. kieso - Solutions

Murphy Corporation began operations in 2008 and reported pretax financial income of $225,000 for the year. Murphy’s tax depreciation exceeded its book depreciation by $30,000. Murphy’s tax rate for 2008 and years thereafter is 30%. In its December 31, 2008, balance sheet, what amount of
Using the information from BE15-2, assume this is the only difference between Murphy’s pretax financial income and taxable income. Prepare the journal entry to record the income tax expense, deferred income taxes, and income tax payable, and show how the deferred tax liability will be classified
At December 31, 2007, Yserbius Corporation had a deferred tax liability of $25,000. At December 31, 2008, the deferred tax liability is $42,000. The corporation’s 2008 current tax expense is $43,000. What amount should Yserbius report as total 2008 tax expense?
At December 31, 2008, Deep Space Nine Corporation had an estimated warranty liability of $125,000 for accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 40%. Compute the amount Deep Space Nine should report as a deferred tax
At December 31, 2007, Next Generation Inc. had a deferred tax asset of $35,000. At December 31, 2008, the deferred tax asset is $59,000. The corporation’s 2008 current tax expense is $61,000. What amount should Next Generation report as total 2008 tax expense?
At December 31, 2008, Stargate Corporation has a deferred tax asset of $200,000. After a careful review of all available evidence, it is determined that it is more likely than not that $80,000 of this deferred tax asset will not be realized. Prepare the necessary journal entry.
No Doubt Corporation had income before income taxes of $175,000 in 2008. No Doubt’s current income tax expense is $40,000, and deferred income tax expense is $30,000. Prepare No Doubt’s 2008 income statement, beginning with income before income taxes.
Tazmania Inc. had pretax financial income of $154,000 in 2008. Included in the computation of that amount is insurance expense of $4,000 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $14,000. Prepare Tazmania’s journal
Terminator Corporation has a cumulative temporary difference related to depreciation of $630,000 at December 31, 2008. This difference will reverse as follows: 2009, $42,000; 2010, $294,000; and 2011, $294,000. Enacted tax rates are 34% for 2009 and 2010, and 40% for 2011. Compute the amount
At December 31, 2007. Tick Corporation had a deferred tax liability of $680,000, resulting from future taxable amounts of $2,000,000 and an enacted tax rate of 34%. In May 2008, a new income tax act is signed into law that raises the tax rate to 38% for 2008 and future years. Prepare the journal
Valis Corporation had the following tax information.In 2008 Valis suffered a net operating loss of $450,000, which it elected to carry back. The 2008 enacted tax rate is 29%. Prepare Valis€™s entry to record the effect of the losscarryback.
Zoop Inc. incurred a net operating loss of $500,000 in 2008. Combined income for 2006 and 2007 was $400,000. The tax rate for all years is 40%. Zoop elects the carryback option. Prepare the journal entries to record the benefits of the loss carryback and the loss carryforward.
Use the information for Zoop Inc. given in BE15-13. Assume that it is more likely than not that the entire net operating loss carryforward will not be realized in future years. Prepare all the journal entries necessary at the end of 2008.
Vectorman Corporation has temporary differences at December 31, 2008, that result in the following deferred taxes.Deferred tax liability current .......$38,000Deferred tax asset current .......$(52,000)Deferred tax liability noncurrent ....$96,000Deferred tax asset noncurrent
South Carolina Corporation has one temporary difference at the end of 2008 that will reverse and cause taxable amounts of $55,000 in 2009, $60,000 in 2010, and $65,000 in 2011. South Carolina’s pretax financial income for 2008 is $300,000, and the tax rate is 30% for all years. There are no
The following information is available for Wenger Corporation for 2008.1. Excess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse equally over the years 2009–2012.2. Deferral, for book purposes, of $20,000 of rent received in advance. The rent will be
Bandung Corporation began 2008 with a $92,000 balance in the Deferred Tax Liability account. At the end of 2008, the related cumulative temporary difference amounts to $350,000, and it will reverse evenly over the next 2 years.Pretax accounting income for 2008 is $525,000, the tax rate for all
Zurich Company reports pretax financial income of $70,000 for 2008. The following items cause taxable income to be different than pretax financial income.1. Depreciation on the tax return is greater than depreciation on the income statement by $16,000.2. Rent collected on the tax return is greater
The following facts relate to Krung Thep Corporation.1. Deferred tax liability, January 1, 2008, $40,000.2. Deferred tax asset, January 1, 2008, $0.3. Taxable income for 2008, $95,000.4. Pretax financial income for 2008, $200,000.5. Cumulative temporary difference at December 31, 2008, giving rise
Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes.InstructionsFor each item below, indicate whether it involves:1. A temporary difference that will result in future deductible amounts and, therefore, will usually give
Terminology, Relationships, Computations, EntriesInstructionsComplete the following statements by filling in the blanks.(a) In a period in which a taxable temporary difference reverses, the reversal will cause taxable income to be _______ (less than, greater than) pretax financial income.(b) If a
Button Company has two temporary differences between its income tax expense and income taxes payable. The information is shown below.The income tax rate for all years is 40%.Instructions(a) Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for
The pretax financial income (or loss) figures for Jenny Spangler Company are as follows.2003 ......$160,0002004 ........250,0002005 .......80,000 2006 ...... (160,000) 2007 ...... (380,000)2008 ........120,0002009 ........100,000Pretax financial income (or loss) and taxable income (loss) were the
Felicia Rashad Corporation has pretax financial income (or loss) equal to taxable income (or loss) from 2000 through 2008 as follows.Pretax financial income (loss) and taxable income (loss) were the same for all years since Rashad has been in business.Assume the carryback provision is employed for
At December 31, 2008, Belmont Company had a net deferred tax liability of $375,000. An explanation of the items that compose this balance is as follows.In analyzing the temporary differences, you find that $30,000 of the depreciation temporary difference will reverse in 2009, and $120,000 of the
The following facts relate to Duncan Corporation.1. Deferred tax liability, January 1, 2008, $60,000.2. Deferred tax asset, January 1, 2008, $20,000.3. Taxable income for 2008, $105,000.4. Cumulative temporary difference at December 31, 2008, giving rise to future taxable amounts, $230,000.5.
At the end of 2008, Lucretia McEvil Company has $180,000 of cumulative temporary differences that will result in reporting future taxable amounts as follows.2009 .....$ 60,0002010 .....50,0002011 .....40,0002012 .....30,000.......$180,000Tax rates enacted as of the beginning of 2007 are:2007 and
Jennifer Capriati Corp. has a deferred tax asset account with a balance of $150,000 at the end of 2007 due to a single cumulative temporary difference of $375,000. At the end of 2008 this same temporary difference has increased to a cumulative amount of $450,000.Taxable income for 2008 is $820,000.
Assume the same information as E15-14, except that at the end of 2007, Jennifer Capriati Corp. had a valuation account related to its deferred tax asset of $45,000.Instructions(a) Record income tax expense, deferred income taxes, and income taxes payable for 2008, assuming that it is more likely
Novotna Inc.’s only temporary difference at the beginning and end of 2008 is caused by a $3 million deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2009
Taxable income and pretax financial income would be identical for Huber Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared.The tax rates in effect are: 2007, 40%; 2008 and 2009, 45%. All tax
During 2008, Kate Holmes Co.'s first year of operations, the company reports pretax financial income at $250,000. Holmes's enacted tax rate is 45% for 2008 and 40% for all later years. Holmes expects to have taxable income in each of the next 5 years. The effects on future tax returns of temporary
Andy McDowell Co. establishes a $100 million liability at the end of 2008 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2009. Also, at the end of 2008, the company has $50 million of temporary
Teri Hatcher Inc., in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2008.It is estimated that the warranty liability will be settled in 2009. The difference in equipment (net) will result in taxable
Nadal Inc. has two temporary differences at the end of 2008. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadal€™s accounting department has developed a schedule of future taxable and deductible amounts related to
The differences between the book basis and tax basis of the assets and liabilities of Castle Corporation at the end of 2008 are presented below.It is estimated that the litigation liability will be settled in 2009. The difference in accounts receivable will result in taxable amounts of $30,000 in
Spamela Hamderson Inc. reports the following pretax income (loss) for both financial reporting purposes and tax purposes. (Assume the carryback provision is used for a net operating loss.)The tax rates listed were all enacted by the beginning of 2006.Instructions(a) Prepare the journal entries for
Beilman Inc. reports the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss.)The tax rates listed were all enacted by the beginning of 2006.Instructions(a) Prepare the journal entries for years
Meyer reported the following pretax financial income (loss) for the years 2006–2010.2006 .....$240,0002007 .......350,0002008 .......120,000 2009 ......(570,000)2010 .......180,000Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate
The following information is available for Swanson Corporation for 2008.1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $100,000. This difference will reverse in equal amounts of $25,000 over the years 2009–2012.2. Interest received on
The pretax financial income of Parker-Gregory Company differs from its taxable income throughout each of 4 years as follows.Pretax financial income for each year includes a nondeductible expense of $30,000 (never deductible for tax purposes). The remainder of the difference between pretax financial
The following information has been obtained for the Kerdyk Corporation.1. Prior to 2007, taxable income and pretax financial income were identical.2. Pretax financial income is $1,700,000 in 2007 and $1,400,000 in 2008.3. On January 1, 2007, equipment costing $1,000,000 is purchased. It is to be
The accounting records of Anderson Inc. show the following data for 2008.1. Life insurance expense on officers was $9,000.2. Equipment was acquired in early January for $200,000. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Anderson used a 30% rate
Parnevik Inc. reported the following pretax income (loss) and related tax rates during the years 2004€“2010.Pretax financial income (loss) and taxable income (loss) were the same for all years since Parnevik began business. The tax rates from 2007€“2010 were enacted in
Presented below are two independent situations related to future taxable and deductible amounts resulting from temporary differences existing at December 31, 2008.1. Pirates Co. has developed the following schedule of future taxable and deductible amounts.2. Eagles Co. has the following schedule of
Gators Corp. sold an investment on an installment basis. The total gain of $60,000 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment sales method for tax purposes. The installment period is 3 years; one-third of the sale price is
The following information was disclosed during the audit of Munter Inc.1. Amount DueYear ....per Tax Return2008 .......$140,0002009 ......112,0002. On January 1, 2008, equipment costing $400,000 is purchased. For financial reporting purposes, the company uses straight-line
King Company began operations at the beginning of 2008. The following information pertains to this company.1. Pretax financial income for 2008 is $100,000.2. The tax rate enacted for 2008 and future years is 40%3. Differences between the 2008 income statement and tax return are listed below:(a)
The financial statements of Procter & Gamble (P&G) can be accessed at the book’s website.InstructionsRefer to P&G’s financial statements and the accompanying notes to answer the following questions.(a) What amounts relative to income taxes does P&G report in its:(1) 2006 income statement?(2)
The financial statements of The Coca-Cola Company and PepsiCo, Inc. can be accessed at the book’s website.InstructionsUse information found at the book’s website to answer the following questions.(a) What are the amounts of Coca-Cola’s and PepsiCo’s provision for income taxes for the year
Tomkins PLC is a British company that operates in three business sectors: industrial and automotive, air systems components, and engineering and construction products. Before 2005 Tomkins prepared its accounts in accordance with United Kingdom (U.K.) accounting standards. Like U.S. reporting, U.K.
Majoli Company appropriately uses the asset-liability method to record deferred income taxes. Iva Majoli reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for
The asset-liability approach for recording deferred income taxes is an integral part of generally accepted accounting principles.Instructions(a) Indicate whether each of the following independent situations should be treated as a temporary difference or as a permanent difference and explain why.(1)
Accounting and Classification of Deferred Income TaxesPart AThis year Sharapova Company has each of the following items in its income statement.1. Gross profits on installment sales.2. Revenues on long-term construction contracts.3. Estimated costs of product warranty contracts.4. Premiums on
Caitlin Carter operates a health food store, and she has been the only employee. Her business is growing, and she is considering hiring some additional staff to help her in the store. Explain to her the various payroll deductions that she will have to account for, including their potential impact
Weiland Corporation has an employee stock purchase plan which permits all full-time employees to purchase 10 shares of common stock on the third anniversary of their employment and an additional 15 shares on each subsequent anniversary date. The purchase price is set at the market price on the date
How is the compensation expense of stock options computed using the fair value approach?
Agar Company reported net income of $25,000 in 2008. It had the following amounts related to its pension plan in 2008: Actuarial liability gain $10,000; Unexpected asset loss $13,000; Accumulated other comprehensive income (G/L) (beginning balance), zero. Determine for 2009 (a) Agar’s other
Future Zone Corporation’s weekly payroll of $23,000 included FICA taxes withheld of $1,426, federal taxes withheld of $2,990, state taxes withheld of $920, and insurance premiums withheld of $250. Prepare the journal entry to record Future Zone’s payroll.
Tale Spin Inc. provides paid vacations to its employees. At December 31, 2008, 30 employees have each earned 2 weeks of vacation time. The employees’ average salary is $600 per week. Prepare Tale Spin’s December 31, 2008, adjusting entry.
Gargoyle Corporation provides its officers with bonuses based on income. For 2008, the bonuses total $450,000 and are paid on February 15, 2009. Prepare Gargoyle’s December 31, 2008, adjusting entry and the February 15, 2009, entry.
On January 1, 2008, Johnson Corporation granted 5,000 options to executives. Each option entitles the holder to purchase one share of Johnson’s $5 par value common stock at $50 per share at any time during the next 5 years. The market price of the stock is $65 per share on the date of grant. The
On July 1, 2008, Soriano Corporation granted 10,000 options to executives. Each option entitles the holder to purchase one share of Soriano’s $10 par value common stock at $100 per share at any time during the next 5 years. The market price of the stock is $121 per share on the date of grant.
The following information is available for Jack Borke Corporation for 2008. Service cost ...............$29,000Interest on projected benefit obligation .......22,000Return on plan assets ..............20,000Amortization of prior service cost .........15,200Compute Borke’s 2008 pension expense.
At January 1, 2008, Uddin Company had plan assets of $250,000 and a projected benefit obligation of the same amount. During 2008, service cost was $27,500, the settlement rate was 10%, actual and expected return on plan assets were $25,000, contributions were $20,000, and benefits paid were
Judy O’Neill Corporation has the following balances at December 31, 2008. Projected benefit obligation ....$2,800,000Plan assets at fair value .......2,000,000Accumulated OCI (PSC) .......1,100,000How should these balances be reported on O’Neill’s balance sheet at December 31,2008?
DeMent Co. had the following amounts related to its pension plan in 2008.Actuarial liability loss for 2008 ..................$25,000Unexpected asset gain for 2008 ..........................................................18,000Accumulated other comprehensive income (G/L) (beginning balance)
At December 31, 2008, Conway Corporation had a projected benefit obligation of $510,000, plan assets of $322,000, accumulated other comprehensive income (PSC) of $127,000, and pension liability of $61,000.Prepare a pension reconciliation schedule for Conway
Caleb Corporation has the following information available concerning its postretirement benefit plan for 2008.Service cost .........$40,000Interest cost ..........52,400Return on plan assets .....26,900Compute Caleb’s 2008 postretirement expense.
Zero Mostel Company began operations on January 2, 2008. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned.
Assume the facts in the preceding exercise, except that Zero Mostel Company has chosen not to accrue paid sick leave until used, and has chosen to accrue vacation time at expected future rates of pay without discounting. The company used the following projected rates to accrue vacation
The total payroll of Rene Auber Company for September 2008 was $480,000, of which $110,000 is exempt from FICA tax because it represented amounts paid in excess of $97,500 to certain employees. The amount paid to employees in excess of $7,000 was $400,000. Income taxes in the amount of $90,000 were
Green Day Hardware Company€™s payroll for November 2008 is summarized below.At this point in the year some employees have already received wages in excess of those to which payroll taxes apply. Assume that the state unemployment tax is 2.5%. The FICA rate is 7.65% on an
On November 1, 2007, Columbo Company adopted a stock option plan that granted options to key executives to purchase 30,000 shares of the company’s $10 par value common stock. The options were granted on January 2, 2008, and were exercisable 2 years after the date of grant if the grantee was
On January 1, 2008, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $25 per share. The options were exercisable within a 5-year period beginning January 1, 2010, by grantees still in the employ of the
On January 1, 2007, Nichols Corporation granted 10,000 options to key executives. Each option allows the executive to purchase one share of Nichols’ $5 par value common stock at a price of $20 per share. The options were exercisable within a 2-year period beginning January 1, 2009, if the
The following information is available for the pension plan of Kiley Company for the year 2008.Actual and expected return on plan assets .....$ 12,000Benefits paid to retirees ............40,000Contributions (funding) ............95,000Interest/discount rate ...............10%Prior service cost
Rebekah Company provides the following information about its defined-benefit pension plan for the year 2008.Service cost ...................$ 90,000Contribution to the plan ................105,000Prior service cost amortization ..............10,000Actual and expected return on plan assets
Mildred Enterprises provides the following information related to its defined-benefit pension plan.Balances or Values at December 31, 2008Projected benefit obligation .................$2,737,000Fair value of plan assets ...................2,278,329Accumulated OCI (PSC)
Star Wars Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period, vacation pay is also listed.Assume that the federal income tax withheld is 10% of wages. Union dues withheld are 2% of wages.
Below is a payroll sheet for Empire Import Company for the month of September 2004. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is $7,000. Assume a 10% federal income tax rate for all employees and a
ISU Company adopted a stock option plan on November 30, 2007, that provided that 70,000 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $8 a share. The market value was $12 a share on November 30, 2007.On January 2,
Mantle Company sponsors a defined-benefit pension plan. The following information related to the pension plan is available for 2008.2008Plan assets (fair value), January 1 ........$380,000Projected benefit obligation, January 1 ........600,000Pension liability, January 1 ...........220,000Prior
The financial statements of Procter & Gamble (P&G) can be accessed at the book’s website.InstructionsRefer to P&G’s financial statements and the accompanying notes to answer the following questions.(a) Under P&G’s stock-based compensation plan, stock options are granted
The financial statements of The Coca-Cola Company and PepsiCo, Inc. can be accessed at the book’s website.Instructions(a) What employee stock option compensation plans do Coca-Cola and PepsiCo offer?(b) How many options did Coca-Cola and PepsiCo grant to officers and employees during 2006?(c)
Troy Van Beek, assistant controller for Cizek Electric Company, is preparing for a meeting with the loan committee of First City Bank. The loan committee will be reviewing Cizek’s financial statements and projections as part of the company’s loan-renewal process. Troy expects some questions
Kyowa Hakko Kogyo Co., Ltd., is an R&€“based company with special strengths in biotechnology. The company is dedicated to the creation of new value in the life sciences, especially in its two core business segments of pharmaceuticals and bio-chemicals, and strives to contribute to the
The following two items appeared on the Internet concerning the passage of SFAS No. 123(R).WASHINGTON, D.C.—February 17, 2005 Congressman David Dreier (R–CA), Chairman of the House Rules Committee, and Congresswoman Anna Eshoo (D–CA) reintroduced legislation today that will preserve broad
Jackie Remmers Co. is expanding its operations and is in the process of selecting the method of financing this program. After some investigation, the company determines that it may (1) Issue bonds and with the proceeds purchase the needed assets, or (2) Lease the assets on a long-term basis.
Wayne Higley Company rents a warehouse on a month-to month basis for the storage of its excess inventory. The company periodically must rent space whenever its production greatly exceeds actual sales. For several years the company officials have discussed building their own storage facility, but
Joan Elbert Company is a manufacturer and lessor of computer equipment. What should be the nature of its lease arrangements with lessees if the company wishes to account for its lease transactions as sales-type leases?
Gordon Graham Corporation’s lease arrangements qualify as sales-type leases at the time of entering into the transactions. How should the corporation recognize revenues and costs in these situations?
Joann Skabo, M.D. (lessee) has a non-cancelable 20-year lease with Countryman Realty, Inc. (lessor) for the use of a medical building. Taxes, insurance, and maintenance are paid by the lessee in addition to the fixed annual payments, of which the present value is equal to the fair market value of
What disclosures should be made by a lessee if the leased assets and the related obligation are not capitalized?
Callaway Golf Co. leases telecommunications equipment. Assume the following data for equipment leased from Photon Company. The lease term is 5 years and requires equal rental payments of $30,000 at the beginning of each year. The equipment has a fair value at the inception of the lease of $138,000,
Waterworld Company leased equipment from Costner Company. The lease term is 4 years and requires equal rental payments of $37,283 at the beginning of each year. The equipment has a fair value at the inception of the lease of $130,000, an estimated useful life of 4 years, and no salvage value.
Kleckner Corporation recorded a capital lease at $200,000 on January 1, 2008. The interest rate is 12%. Kleckner Corporation made the first lease payment of $35,947 on January 1, 2008. The lease requires eight annual payments. The equipment has a useful life of 8 years with no salvage value.
Use the information for Kleckner Corporation from BE17-3. Assume that at December 31, 2008, Kleckner made an adjusting entry to accrue interest expense of $19,686 on the lease. Prepare Kleckner’s January 1, 2009, journal entry to record the second lease payment of $35,947.
Jana Corporation enters into a lease on January 1, 2008, that does not transfer ownership or contain a bargain purchase option. It covers 3 years of the equipment’s 8-year useful life, and the present value of the minimum lease payments is less than 90% of the fair market value of the asset
Assume IBM leased equipment that was carried at a cost of $150,000 to Swander Company. The term of the lease is 6 years beginning January 1, 2008, with equal rental payments of $30,677 at the beginning of each year. All executory costs are paid by Swander directly to third parties. The fair value

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