$5\mathrm{.}7$ Comprehensive exercise

The following information is available with regard to the accounting of XYZ Inc. for the year

ended December ${31}^{st},2017$ :

Pretax financial income for $2017$ was $100,000$

The following differences between the financial accounting records and the tax records

exist:

$$ XYZ bought a building on the $1^{st}$ of January $2016$ for $500,000.$ For financial

accounting purposes, the building is depreciated using the straight$-$line method

over $20$ years, with no residual value. For tax purposes the yearly depreciation

expense is $50,000.$

The company had a warranty provision of $4,000$ outstanding on the $1^{st}$ of

January $2017.$ During $2017,7,000$ of warranty expenses were accrued, and

$3,000$ of warranties was paid out.

$$ The company paid a $10,000$ pollution fine during $2017.$ This fine was deducted

when calculating pretax financial income.

At the start of the year $2017,$ XYZ Inc. had an amount of $20,000$ outstanding

as accounts receivable. During the year, $15,000$ of sales on account were made

and $10,000$ of accounts receivables were collected.

$xYZ$ Inc. is subject to a $30\%$ tax rate.

No other differences between the accounting and tax records existed.

A$.$ Determine the amount of deferred tax assets and deferred tax liabilities that are reported

on the balance sheet on December ${31}^{st},2016.$

B$.$ Calculate the total income tax expense$/$benefit$,$ the current income tax expense$/$benefit$,$

and the deferred income tax expense$/$benefit for the year $2017$ and provide the journal

entries.

C$.$ Determine the amount of deferred tax assets and deferred tax liabilities that are reported

on the balance sheet on December ${31}^{st},2017.$

D$.$ Assume that $xYZ$ Inc. incurred $3,000$ in losses in the prior year. The tax legislation

allows XYZ to carry these taxes forward. Explain how this would affect the bookings

in B$.$ and C$.$