16-31

Name: SOLUTION Enter the appropriate amounts in the shaded cells in columns D, F, H, J and L.

1)

Computation of Income Tax Expense - 2002 Financial income Less: Nontaxable revenue Installment sales deferred Plus: Warranty expense Taxable income x Tax rate

$ 40,000 (50,000) (enter as a negative amount) (20,000) (enter as a negative amount) 50,000 $ 20,000 40% $ 8,000

Computation of Tax Related Amounts Enacted Rate 35% 32% 30% 30% Deductible Amount $ 9,000 16,500 20,500 4,000 $ 50,000 Asset Valuation $ 3,150 5,280 6,150 1,200 $ 15,780 Taxable Amount $ 5,000 7,000 2,000 6,000 $ 20,000 Liability Valuation $ 1,750 2,240 600 1,800 $ 6,390

Year 2003 2004 2005 2006

Current items: Deferred tax asset Deferred tax liability Net deferred tax asset Noncurrent items: Deferred tax asset Deferred tax liability Net deferred tax asset Journal Entries Income Tax Expense Income Taxes Payable Deferred Tax Asset - Current Deferred Tax Asset - Noncurrent Income Tax Benefit - Deferred Deferred Tax Liability - Current Deferred Tax Liability - Noncurrent 2)

$ 3,150 1,750 $ 1,400

$ 12,630 4,640 $ 7,990

8,000 8,000 3,150 12,630 9,390 1,750 4,640

Stratco Corporation Partial Income Statement For the Year Ended December 31, 2002 Income from continuing operations before income taxes Income taxes: Current provision $ 8,000 Deferred benefit (9,390) Net income

$ 40,000

(1,390) $ 41,390