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HW Assignment 8 - Deferred Taxes You MUST show all work in order to receive credit for the problems. Problem 1 Work Inc. has the following information: 1. An asset in the amount of $500,000 was purchased on January 1, 2013. For tax purposes, it is a 5 year asset and they use the half year convention. For financial reporting they use the straight-line method of depreciation and are depreciating it over 8 years. Below is the depreciation expenses by year: 2013 2014 2015 2016 2017 2018 2019 2020 Totals Book Depreciation $62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 $500,000 Tax Depreciation $ 50,000 100,000 100,000 100,000 100,000 50,000 0 0 $500,000 Difference $12,500 -37,500 -37,500 -37,500 -37,500 12,500 62,500 62,500 $0 2. Pretax financial accounting income for 2013 was $1,250,000 and for 2014 it was $945,000. 3. In 2014, they earned tax-exempt interest of $110,000. 4. Their tax rate is 30% for 2013 and all future years. Required: Prepare the journal entries for 2013 and 2014 to record income tax expense. Problem 2 Cisco Inc. had a pretax accounting loss of $55 million in 2014. The enacted tax rate is 40% for 2014. There are no differences between the financial accounting income and taxable income. The following is Cisco's taxable income for the five previous years: Year 2009 2010 2011 2012 2013 Income $20 $50 $25 $40 $25 Rate 35% tax rate 35% tax rate 35% tax rate 35% tax rate 40% tax rate Required: 1. Prepare the journal entry on 12/31/14 to record the income tax benefit of the loss, assuming they elect the 2 year carry back. 2. Prepare the journal entry on 12/31/14 to record the income tax benefit of the loss, assuming they elect the carry-forward option