Corning-Howell reported taxable income in 2021 of $120 million. At December 31, 2021, the reported amount of some assets and liabilities in the financial statements differed from their tax bases as indicated below: Carrying Amount Tax Basis Assets Current Net accounts receivable $10million 12million Prepaid insurance 20 million 0 Prepaid advertising 6 million 0 Noncurrent Investments in equity securities (fair value)* 4m 0 Buildings and equipment (net) 360million 280million Liabilities Current Deferred subscription revenue 14 million 0 Long-term Liability—compensated future absences 594 million 0 *Gains and losses taxable when investments are sold. The total deferred tax asset and deferred tax liability amounts at January 1, 2021, were $156.25 million and $25 million, respectively. The enacted tax rate is 25% each year. Required:1. Determine the total deferred tax asset and deferred tax liability amounts at December 31, 2021.2. Determine the increase (decrease) in the deferred tax asset and deferred tax liability accounts at December 31, 2021.3. Determine the income tax payable currently for the year ended December 31, 2021.4. Prepare the journal entry to record income taxes for 2021.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Corning-Howell reported taxable income in 2021 of $120 million. At December 31, 2021, the reported amount of some assets and liabilities in the financial statements differed from their tax bases as indicated below:

	Carrying Amount	Tax Basis
Assets
Current
Net accounts receivable	$10million	12million
Prepaid insurance	20 million	0
Prepaid advertising	6 million	0
Noncurrent
Investments in equity securities (fair value)*	4m	0
Buildings and equipment (net)	360million	280million
Liabilities
Current
Deferred subscription revenue	14 million	0
Long-term
Liability—compensated future absences	594 million	0

^*Gains and losses taxable when investments are sold.

The total deferred tax asset and deferred tax liability amounts at January 1, 2021, were $156.25 million and $25 million, respectively. The enacted tax rate is 25% each year.

Required:
1. Determine the total deferred tax asset and deferred tax liability amounts at December 31, 2021.
2. Determine the increase (decrease) in the deferred tax asset and deferred tax liability accounts at December 31, 2021.
3. Determine the income tax payable currently for the year ended December 31, 2021.
4. Prepare the journal entry to record income taxes for 2021.

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