Interperiod Tax Allocation Quick Company reports the following revenues and expenses in its pretax financial income for the year ended December 31, 2013: Revenues 229,600 Expenses (160,100) Pretax financial income 69,500 The revenues included in pretax financial income are the same amount as the revenues included in the company’s taxable income. A reconciliation of the expenses reported for pretax financial income to the expenses reported for taxable income, however, reveals four differences: 1. Depreciation deducted for financial reporting exceeded depreciation deducted for income taxes by $11,000. 2. Percentage depletion deducted for income taxes exceeded cost depletion deducted for financial reporting by 15600. 3. Warranty costs deducted for income taxes exceeded warranty expenses deducted for financial reporting by 8900. 4. Legal expense of $9,800 was deducted for financial reporting; it will be deducted for income taxes when paid in a future year. Quick expects its percentage depletion to exceed its cost depletion in each of the next 5 years by the same amount as in 2013. At the end of 2013, the other three expenses are expected to result in total future taxable or deductible amounts as follows: Totals Future taxable amounts Depreciation expense difference 63,000 Future deductible amounts Warranty expense difference 48,400 Legal expense difference 9,800 At the beginning of 2013, Quick had a deferred tax liability of $22,200 related to the depreciation difference and a deferred tax asset of $17,190 related to the warranty difference. The income tax rate for 2013 is 35%, but in 2012 Congress enacted a 30% rate for 2014 and future years. Required: 1. How much is the taxable income at December 31, 2013? 2. How much is the deferred tax asset at December 31, 2013? 3. How much is the deferred tax liability at December 31, 2013? 4. How much is the current tax income expense for 2013? 5. How much is the net income after income tax provision at December 31, 2013?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Interperiod Tax Allocation Quick Company reports the following revenues and expenses in its pretax financial income for the year ended December 31, 2013:
Revenues 229,600
Expenses (160,100)
Pretax financial income 69,500
The revenues included in pretax financial income are the same amount as the revenues included in the company’s taxable income. A reconciliation of the expenses reported for pretax financial income to the expenses reported for taxable income, however, reveals four differences:
1.
2. Percentage depletion deducted for income taxes exceeded cost depletion deducted for financial reporting by 15600.
3. Warranty costs deducted for income taxes exceeded warranty expenses deducted for financial reporting by 8900.
4. Legal expense of $9,800 was deducted for financial reporting; it will be deducted for income taxes when paid in a future year.
Quick expects its percentage depletion to exceed its cost depletion in each of the next 5 years by the same amount as in 2013. At the end of 2013, the other three expenses are expected to result in total future taxable or deductible amounts as follows:
Totals
Future taxable amounts
Depreciation expense difference 63,000
Future deductible amounts
Warranty expense difference 48,400
Legal expense difference 9,800
At the beginning of 2013, Quick had a
Required:
1. How much is the taxable income at December 31, 2013?
2. How much is the deferred tax asset at December 31, 2013?
3. How much is the deferred tax liability at December 31, 2013?
4. How much is the current tax income expense for 2013?
5. How much is the net income after income tax provision at December 31, 2013?
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