Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 16, Problem 16.9BE
Calculate taxable income
• LO16–1, LO16–4
Shannon Polymers uses straight-line
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Exercise 16-5 (Algo) Taxable income given; calculate deferred tax liability from book-tax difference;
100% depreciation in the year of purchase; financial statement effects [LO16-2]
Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on
a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate
is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows:
2024
($ in millions)
2025
2026
2027
Pretax accounting income
$ 370
$ 390
Depreciation on the income statement
20
20
$ 405
20
Depreciation on the tax return
(80)
(0)
(0)
$ 440
20
(8)
$ 310
$ 410
$ 425
$ 460
Taxable income
Required:
For December 31 of each year, determine (a) the cumulative temporary book-tex difference for the depreciable asset and (b) the
balance to be reported in the deferred tax liability account.…
Chapter 16 Solutions
Intermediate Accounting
Ch. 16 - Prob. 16.1QCh. 16 - A deferred tax liability (or asset) is described...Ch. 16 - Prob. 16.3QCh. 16 - Prob. 16.4QCh. 16 - Temporary differences result in future taxable or...Ch. 16 - Identify three examples of differences with no...Ch. 16 - The income tax rate for Hudson Refinery has been...Ch. 16 - Suppose a tax reform bill is enacted that causes...Ch. 16 - A net operating loss occurs when tax-deductible...Ch. 16 - Prob. 16.10Q
Ch. 16 - Additional disclosures are required pertaining to...Ch. 16 - Additional disclosures are required pertaining to...Ch. 16 - Prob. 16.13QCh. 16 - Prob. 16.14QCh. 16 - IFRS and U.S. GAAP follow similar approaches to...Ch. 16 - Temporary difference LO161 A company reports...Ch. 16 - Prob. 16.2BECh. 16 - Temporary difference LO162 A company reports...Ch. 16 - Prob. 16.4BECh. 16 - Temporary difference; income tax payable given ...Ch. 16 - Valuation allowance LO162, LO163 At the end of...Ch. 16 - Valuation allowance LO162, LO163 VeriFone Systems...Ch. 16 - Temporary and permanent differences; determine...Ch. 16 - Calculate taxable income LO161, LO164 Shannon...Ch. 16 - Multiple tax rates LO165 J-Matt, Inc., had pretax...Ch. 16 - Change in tax rate LO165 Superior Developers...Ch. 16 - Net operating loss carryforward LO167 During its...Ch. 16 - Net operating loss carryback LO167 AirParts...Ch. 16 - Tax uncertainty LO169 First Bank has some...Ch. 16 - Intraperiod tax allocation LO1610 Southeast...Ch. 16 - Temporary difference; taxable income given LO161...Ch. 16 - Prob. 16.2ECh. 16 - Prob. 16.3ECh. 16 - Prob. 16.4ECh. 16 - Prob. 16.5ECh. 16 - Prob. 16.6ECh. 16 - Identify future taxable amounts and future...Ch. 16 - Calculate income tax amounts under various...Ch. 16 - Determine taxable income LO161, LO162 Eight...Ch. 16 - Prob. 16.10ECh. 16 - Deferred tax asset; income tax payable given;...Ch. 16 - Prob. 16.12ECh. 16 - Prob. 16.13ECh. 16 - Multiple differences LO164, LO166 For the year...Ch. 16 - Multiple t ax rates LO162, LO165 Allmond...Ch. 16 - Prob. 16.16ECh. 16 - Deferred taxes; change in tax rates LO161, LO165...Ch. 16 - Multiple temporary differences; record income...Ch. 16 - Multiple temporary differences; record income...Ch. 16 - Net operating loss carryforward LO167 During...Ch. 16 - Net operating loss carryback LO167 Wynn Sheet...Ch. 16 - Net operating loss carryback and carryforward ...Ch. 16 - Identifying income tax deferrals LO161, LO162,...Ch. 16 - Multiple temporary differences; balance sheet...Ch. 16 - Multiple tax rates LO161, LO164, LO165 Case...Ch. 16 - Prob. 16.26ECh. 16 - Balance sheet classification LO168 As of December...Ch. 16 - Concepts; terminology LO161 through LO168 Listed...Ch. 16 - Tax credit; uncertainty regarding sustainability ...Ch. 16 - Intraperiod tax allocation LO1610 The following...Ch. 16 - FASB codification research LO165, LO168, LO1610...Ch. 16 - Prob. 16.1PCh. 16 - Prob. 16.2PCh. 16 - Prob. 16.3PCh. 16 - Prob. 16.4PCh. 16 - Change in tax rate; record taxes for four years ...Ch. 16 - Multiple differences; temporary difference yet to...Ch. 16 - Multiple differences; calculate taxable income;...Ch. 16 - Multiple differences; taxable income given; two...Ch. 16 - Determine deferred tax assets and liabilities ...Ch. 16 - Prob. 16.10PCh. 16 - Prob. 16.11PCh. 16 - Prob. 16.12PCh. 16 - Prob. 16.13PCh. 16 - Prob. 16.1BYPCh. 16 - Prob. 16.2BYPCh. 16 - Integrating Case 163 Tax effects of accounting...Ch. 16 - Communication Case 164 Deferred taxes; changing...Ch. 16 - Prob. 16.5BYPCh. 16 - Research Case 166 Researching the way tax...Ch. 16 - Analysis Case 167 Reporting deferred taxes; Ford...Ch. 16 - Prob. 16.8BYPCh. 16 - Judgment Case 169 Analyzing the effect of deferred...Ch. 16 - Prob. 16.12BYPCh. 16 - Target Case LO16-1, LO16-2, LO16-4, LO16-8,...Ch. 16 - Prob. 1CCIFRS
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- Kk.8.arrow_forwardBE 10-1 Acquisition cost; equipment LO10-1 Beaverton Lumber purchased milling equipment for $35,000. In addition to the purchase price, Beaverton made the following expenditures: freight, $1,500; installation, $3,000; testing, $2,000; personal property tax on the equipment for the first year, $500. What is the initial cost of the equipment?arrow_forwardExercise 16-2 (Algo) Determine taxable income; determine prior year deferred tax amount; financial statement effects [LO16-2] On January 1, 2021, Ameen Company purchased major pieces of manufacturing equipment for a total of $54 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2023, the book value of the equipment was $48 million and its tax basis was $38 million. At December 31, 2024, the book value of the equipment was $46 million and its tax basis was $31 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2024 was $35 million. Required: 1. Prepare the appropriate journal entry to record Ameen's 2024 income taxes. Assume an income tax rate of 25%, 2. What is Ameen's 2024 net income?arrow_forward
- acc1arrow_forward11-8 Book value and taxes on sale of assets Troy Industries purchased a new machine 3 years ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the percentages given in Table 4.2 on page 000. Assume a 40% tax rate. a. What is the book value of the machine? b. Calculate the firm's tax liability if it sold the machine for each of the following amounts: $100,000; $56,000; $23,200; and $15,000.arrow_forward6 tion A $3,000 computer is sold before the end of its useful life for 10% more than its salvage value of $800. Which of the following the firm needs to report for tax accounting purposes? A) Depreciation recapture B) Income C) Capital gain D) Lossarrow_forward
- ILLUSTRATION 3 Taxable Temporary Differences A company purchased an asset costing shs.1,500 at the end of 2008 the carrying amount is shs.1,000. The cumulative depreciation for tax purposes is shs.900 and the current tax rate is 25%. Required; Calculate the deferred tax liability for the asset. SOLUTION Firstly, what is the tax base of the asset? It is shs.1,500 – shs.900 = shs.600. In order to recover the carrying value of shs.1,000, the entity must earn taxable income of shs.1,000, but it will only be able to deduct shs.600 as a taxable expense. The entity must therefore pay income tax of shs.400 × 25% = shs.100 when the carrying value of the asset is recovered. The entity must therefore recognize a deferred tax liability of shs.400×25% = shs.100, recognizing the difference between the carrying amount ofarrow_forwardP10-4 Calculating depreciation by three methods and the advantage of accelerated depreciation for tax purposes [20–30 min] On 3 January 2017, Joe Campbell Photography paid $224 000 for photo equipment. In addition to the purchase price, Campbell paid $700 freight charges, $100 insurance for the equipment while in transit, $12 100 customs duty, and $3100 for specialised training to be able to use the equipment. Campbell estimates that the equipment will remain in service for five years and have a residual value of $20000. The equipment should produce 50000 photos the first year, with annual production decreasing by 5000 photos during each of the next four years (that is, 45 000 photos in year 2, 40000 in year 3 and so on-a total of 200 000 photos). In trying to decide which depreciation method to use, Campbell has requested a depreciation schedule for each of three depreciation methods (straight line, units of production and reducing balance). Requirements 1 For each depreciation…arrow_forward3arrow_forward
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