Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 20, Problem 20.6P
Change in principle; change in
• LO20–3
During 2016 and 2017, Faulkner Manufacturing used the sum-of-the-years’-digits (SYD) method of depreciation for its depreciable assets, for both financial reporting and tax purposes. At the beginning of 2018, Faulkner decided to change to the straight-line method for both financial reporting and tax purposes. A tax rate of 40% is in effect for all years.
For an asset that cost $21,000 with an estimated residual value of $1,000 and an estimated useful life of 10 years, the depreciation under different methods is as follows:
Required:
1. Describe the way Faulkner should account for the change described. Include in your answer any
2. Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years’-digits in 2018. Describe the way Faulkner should account for the change. Include in your answer any journal entry Faulkner will record in 2018 related to the change and any required note disclosures.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A8
nku.3
Exercise 16-12 (Algo) Deferred tax asset; taxable income given; valuation allowance [LO16-4]
At the end of 2023, Payne Industries had a deferred tax asset account with a balance of $115 million attributable to a temporary book-
tax difference of $460 million in a liability for estimated expenses. At the end of 2024, the temporary difference is $352 million. Payne
has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2024 is $828 million
and the tax rate is 25%.
Required:
1. Prepare the journal entry(s) to record Payne's income taxes for 2024, assuming it is more likely than not that the deferred tax
asset will be realized in full.
2. Prepare the journal entry(s) to record Payne's income taxes for 2024, assuming it is more likely than not that only one-fourth of
the deferred tax asset ultimately will be realized.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Prepare the journal entry(s) to…
Chapter 20 Solutions
Intermediate Accounting
Ch. 20 - Prob. 20.1QCh. 20 - There are three basic accounting approaches to...Ch. 20 - Prob. 20.3QCh. 20 - Lynch Corporation changes from the...Ch. 20 - Sugarbaker Designs Inc. changed from the FIFO...Ch. 20 - Most changes in accounting principles are recorded...Ch. 20 - Southeast Steel, Inc., changed from the FIFO...Ch. 20 - Prob. 20.8QCh. 20 - Its not easy sometimes to distinguish between a...Ch. 20 - For financial reporting, a reporting entity can be...
Ch. 20 - Prob. 20.11QCh. 20 - Describe the process of correcting an error when...Ch. 20 - Prob. 20.13QCh. 20 - If it is discovered that an extraordinary repair...Ch. 20 - Prob. 20.15QCh. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in inventory methods; average cost method...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in depreciation methods LO203 Irwin, Inc.,...Ch. 20 - Prob. 20.5BECh. 20 - Book royalties LO204 Three programmers at Feenix...Ch. 20 - Warranty expense LO204 In 2017, Quapau Products...Ch. 20 - Change in estimate; useful life of patent LO204...Ch. 20 - Prob. 20.9BECh. 20 - Error correction LO206 In 2018, internal auditors...Ch. 20 - Prob. 20.11BECh. 20 - Error correction LO206 In 2018, the internal...Ch. 20 - Change in principle; change in inventory methods ...Ch. 20 - Change in principle; change in inventory methods ...Ch. 20 - Change from the treasury stock method to retired...Ch. 20 - Change in principle; change to the equity method ...Ch. 20 - Prob. 20.5ECh. 20 - FASB codification research LO202 Access the FASB...Ch. 20 - Change in principle; change in inventory cost...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in depreciation methods LO203 For...Ch. 20 - Change in depreciation methods LO203 The Canliss...Ch. 20 - Book royalties LO204 Dreighton Engineering Group...Ch. 20 - Loss contingency LO204 The Commonwealth of...Ch. 20 - Warranty expense LO204 Woodmier Lawn Products...Ch. 20 - Prob. 20.15ECh. 20 - Accounting change LO204 The Peridot Company...Ch. 20 - Change in estimate; useful life and residual value...Ch. 20 - Classifying accounting changes LO201 through...Ch. 20 - Error correction; inventory error LO206 During...Ch. 20 - Error corrections; investment LO206 Required: 1....Ch. 20 - Prob. 20.21ECh. 20 - Prob. 20.22ECh. 20 - Prob. 20.23ECh. 20 - Inventory errors LO206 Indicate with the...Ch. 20 - Classifying accounting changes and errors LO201...Ch. 20 - Change in inventory costing methods; comparative...Ch. 20 - P 20-2 Change in principle; change in method of...Ch. 20 - Change in inventory costing methods; comparative...Ch. 20 - Change in inventory methods LO202 The Rockwell...Ch. 20 - Change in inventory methods LO202 Fantasy...Ch. 20 - Change in principle; change in depreciation...Ch. 20 - Depletion; change in estimate LO204 In 2018, the...Ch. 20 - Accounting changes; six situations LO201, LO203,...Ch. 20 - Prob. 20.9PCh. 20 - Inventory errors LO206 You have been hired as the...Ch. 20 - Error correction; change in depreciation method ...Ch. 20 - Accounting changes and error correction; seven...Ch. 20 - Prob. 20.13PCh. 20 - Prob. 20.14PCh. 20 - Prob. 20.15PCh. 20 - Prob. 20.16PCh. 20 - Prob. 20.17PCh. 20 - Integrating Case 201 Change to dollar-value LIFO ...Ch. 20 - Prob. 20.2BYPCh. 20 - Prob. 20.3BYPCh. 20 - Analysis Case 204 Change in inventory methods;...Ch. 20 - Prob. 20.5BYPCh. 20 - Prob. 20.6BYPCh. 20 - Analysis Case 208 Various changes LO201 through...Ch. 20 - Analysis Case 209 Various changes LO201 through...Ch. 20 - Prob. 20.10BYPCh. 20 - Prob. 20.11BYPCh. 20 - Prob. 20.12BYPCh. 20 - Prob. 1CCTC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Exercise 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_forwardP 22 Explain please....arrow_forwarddarrow_forward
- urrent Attempt in Progress Oriole Inc's only temporary difference at the beginning and end of 2024 is caused by a $3.15 million deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2025 and 2026. The related deferred tax liability at the beginning of the year is $945,000. In the third quarter of 2024, a new tax rate of 20% is enacted into law and is scheduled to become effective for 2026. Taxable income for 2024 is $5,250,000, and taxable income is expected in all future years. (a) Your answer is incorrect. Determine the amount reported as a deferred tax liability at the end of 2024. Deferred tax liability $ eTextbook and Media eTextbook 1 Assistance Used SUPPORTarrow_forwardQuestion 6 Happy Mart Sdn Bhd acquired an equipment in Year 2016 for RM100,000 and depreciates it on a straight-line basis over its expected useful life of five years. The equipment has no residual value. For tax purposes, the equipment is depreciated at 25% per annum on a straight-line basis. Tax losses may be carried back against taxable profit of the previous five years. In year 2015, the entity's taxable profit was RM25,000. The tax rate is 20%. Required:- Assuming nil profits/losses after depreciation in years 2016 to 2020, show the current and deferred tax impact in years 2016 to 2020 of the acquisition of the equipment. In this question the proformas are given to you to help you to setting out your answer. Please use a separate sheet for your workings. 2018 Year Taxable income Depreciation for tax purposes Taxable profit (tax loss) Current tax expense (income) 2016 2017 2019 2020 Year 2016 2017 2018 2019 2020 Carrying amount Tax base Taxable temporary difference Opening deferred…arrow_forwardPp3arrow_forward
- Nonearrow_forwardExercise 16-23 (Algo) Net operating loss carryforward; financial statement effects [LO16-7] During 2024, its first year of operations, Baginski Steel Corporation reported a net operating loss of $444,000 for financial reporting and tax purposes. The enacted tax rate is 25%. Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss. Assume the weight of available evidence suggests that future taxable income will be sufficient to benefit from future deductible amounts arising from the net operating loss carryforward. 2. Show the lower portion of the 2024 income statement that reports the income tax benefit of the net operating loss.arrow_forwardQuestion 13 HTW Co. reported U.S. GAAP income before taxes of $2,232,000 and taxable income of $1,674,000 for 2022. W The difference was caused by a temporary difference that will reverse in 2023. How much should HTW Co. report as the net deferred asset or liability for 2022, assuming the enacted tax rate was 35% in 2022 and 40% in 2023? (NIE 2) D O $195,300 deferred tax liability O $223,200 deferred tax asset $223,200 deferred tax liability O $195,300 deferred tax asset Question 14 What does a deferred tax asset represent? (NIE 1) An increase in taxes payable in future years as a result of taxable temporary differences. O A decrease in tax returns in future years as a result of deductible temporary differences. OA decrease in taxes payable in future years as a result of taxable temporary differences. O An increase in tax returns in future years as a result of deductible temporary differences.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Property, Plant and Equipment (PP&E) - Introduction to PPE; Author: Gleim Accounting;https://www.youtube.com/watch?v=e_Hx-e-h9M4;License: Standard Youtube License