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    Sherrod, Inc., Reported Pretax Accounting Income of $88 Million For 2018

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    laale dijaan
    This document summarizes the calculation of income tax expense and deferred tax amounts for a company. It shows pretax income of $66 million and permanent/temporary differences that result in taxable income of $65 million. The tax rate is 40%. Current tax payable is $26 million. Deferred tax liability is $8 million and deferred tax asset is $6 million. The journal entry records income tax expense of $28.8 million, increases deferred tax asset by $2.8 million and deferred tax liability by $5.6 million, with a $26 million credit to income tax payable.

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    Sherrod, Inc., Reported Pretax Accounting Income of $88 Million For 2018

    Uploaded by

    laale dijaan
    75 views15 pages
    This document summarizes the calculation of income tax expense and deferred tax amounts for a company. It shows pretax income of $66 million and permanent/temporary differences that result in taxable income of $65 million. The tax rate is 40%. Current tax payable is $26 million. Deferred tax liability is $8 million and deferred tax asset is $6 million. The journal entry records income tax expense of $28.8 million, increases deferred tax asset by $2.8 million and deferred tax liability by $5.6 million, with a $26 million credit to income tax payable.

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    sherrod

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    Sherrod, Inc., reported pretax accounting income of $88 million for 2018

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    This document summarizes the calculation of income tax expense and deferred tax amounts for a company. It shows pretax income of $66 million and permanent/temporary differences that result in taxable income of $65 million. The tax rate is 40%. Current tax payable is $26 million. Deferred tax liability is $8 million and deferred tax asset is $6 million. The journal entry records income tax expense of $28.8 million, increases deferred tax asset by $2.8 million and deferred tax liability by $5.6 million, with a $26 million credit to income tax payable.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    75 views15 pages

    Sherrod, Inc., Reported Pretax Accounting Income of $88 Million For 2018

    Uploaded by

    laale dijaan
    This document summarizes the calculation of income tax expense and deferred tax amounts for a company. It shows pretax income of $66 million and permanent/temporary differences that result in taxable income of $65 million. The tax rate is 40%. Current tax payable is $26 million. Deferred tax liability is $8 million and deferred tax asset is $6 million. The journal entry records income tax expense of $28.8 million, increases deferred tax asset by $2.8 million and deferred tax liability by $5.6 million, with a $26 million credit to income tax payable.

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    of 15

    Ques 1)

    Future Future Future


    Taxable Taxable Amoun Deductible
    ($ in millions)
    (Deductible) [total] Amounts
    Amounts [total]
    2019 2020
    Pretax accounting income 98
    Permanent difference:
    Fine paid 3
    Temporary differences:
    Installment sales -9 5 5 10
    Depreciation -21 9 21 30
    Bad debts 1 -3 -3
    Paid future absences 15 -10 -5 -15
    Loss contingency -6

    Taxable income (tax return) 81

    40 -18

    Enacted tax rate 40% 40% 40%


    Tax payable currently 32.4
    Deferred tax liability 16
    Deferred tax asset (7.20)
    Deferred
    Tax
    Liab. Asset
    Ending balances (balances currently needed): 16 7.20
    Less: beginning balances: -4 -2.8
    Changes needed to achieve desired balances 12 4.4

    So journal entry will be

    Income tax expense 40


    Deferred tax asset 4.4
    Deferred tax liability 12
    Income tax payable 32.4

    Ques 2
    ($ in millions)
    Pretax income 98
    Income tax expense -40
    Net income 58
    Ques 3)
    ($ in millions)
    Related Balance Classification Future Deferred
    current-C Taxable Tax (Asset)
    (Deductible) Tax Liability
    Sheet Account noncurrent-N Amounts Rate C NC
    Receivable – installment sales C 5 40% 2
    Receivable – installment sales NC 5 40% 2
    Depreciable assets NC 30 40% 12
    Allowance – uncollectible accounts C -3 40% -1.2
    Liability – paid future absences C -10 40% -4
    Liability – paid future absences NC -5 40% -2

    Net current liability (asset) -3.2


    Net noncurrent liability (asset) 12

    So we have deferred tax amounts

    Current Assets 3.2


    Long term labilties 12
    Ques 1)
    Future Future Future
    Taxable Taxable Amoun Deductible
    ($ in millions)
    (Deductible) [total] Amounts
    Amounts [total]
    2019 2020
    Pretax accounting income 66
    Permanent difference:
    Fine paid 2
    Temporary differences:
    Installment sales -4 3 3 6
    Depreciation -10 5 9 14
    Bad debts 2 -3 -3
    Paid future absences 15 -5 -7 -12
    Loss contingency -6

    Taxable income (tax return) 65

    20 -15

    Enacted tax rate 40% 40% 40%


    Tax payable currently 26
    Deferred tax liability 8
    Deferred tax asset (6.00)
    Deferred
    Tax
    Liab. Asset
    Ending balances (balances currently needed): 8 6.00
    Less: beginning balances: -2.4 -3.2
    Changes needed to achieve desired balances 5.6 2.8

    So journal entry will be

    Income tax expense 28.8


    Deferred tax asset 2.8
    Deferred tax liability 5.6
    Income tax payable 26

    Ques 2
    ($ in millions)
    Pretax income 66
    Income tax expense -28.8
    Net income 37.2
    Ques 3)
    ($ in millions)
    Related Balance Classification Future Deferred
    current-C Taxable Tax (Asset)
    (Deductible) Tax Liability
    Sheet Account noncurrent-N Amounts Rate C NC
    Receivable – installment sales C 3 40% 1.2
    Receivable – installment sales NC 3 40% 1.2
    Depreciable assets NC 14 40% 5.6
    Allowance – uncollectible accounts C -3 40% -1.2
    Liability – paid future absences C -5 40% -2
    Liability – paid future absences NC -7 40% -2.8

    Net current liability (asset) -2


    Net noncurrent liability (asset) 4

    So we have deferred tax amounts

    Current Assets 2
    Long term labilties 4
    Ques 1)
    Future Future Future
    Taxable Taxable AmDeductible
    ($ in millions)
    (Deductible) [total] Amounts
    Amounts [total]
    2019 2020
    Pretax accounting income 76
    Permanent difference:
    Fine paid 2
    Temporary differences:
    Installment sales -3 2 2 4
    Depreciation -15 8 13 21
    Bad debts 1 -2 -2
    Paid future absences 7 -4 -3 -7
    Loss contingency -2

    Taxable income (tax return) 66

    25 -9

    Enacted tax rate 40% 40% 40%


    Tax payable currently 26.4
    Deferred tax liability 10
    Deferred tax asset (3.60)
    Deferred
    Tax
    Liab. Asset
    Ending balances (balances currently needed): 10 3.60
    Less: beginning balances: -2.8 -1.2
    Changes needed to achieve desired balances 7.2 2.4

    So journal entry will be

    Income tax expense 31.2


    Deferred tax asset 2.4
    Deferred tax liability 7.2
    Income tax payable 26.4

    Ques 2
    ($ in millions)
    Pretax income 76
    Income tax expense -31.2
    Net income 44.8
    Ques 3)
    ($ in millions)
    Related Balance Classification Future Deferred
    current-C Taxable Tax (Asset)
    (Deductible) Tax Liability
    Sheet Account noncurrent-N Amounts Rate C NC
    Receivable – installment sales C 2 40% 0.8
    Receivable – installment sales NC 2 40% 0.8
    Depreciable assets NC 21 40% 8.4
    Allowance – uncollectible accounts C -2 40% -0.8
    Liability – paid future absences C -4 40% -1.6
    Liability – paid future absences NC -3 40% -1.2

    Net current liability (asset) -1.6


    Net noncurrent liability (asset) 8

    So we have deferred tax amounts

    Current Assets 1.6


    Long term labilties 8
    Ques 1)
    Future Future Future
    Taxable Taxable AmDeductible
    ($ in millions)
    (Deductible) [total] Amounts
    Amounts [total]
    2019 2020
    Pretax accounting income 76
    Permanent difference:
    Fine paid 2
    Temporary differences:
    Installment sales -3 2 2 4
    Depreciation -15 8 13 21
    Bad debts 1 -2 -2
    Paid future absences 7 -4 -3 -7
    Loss contingency -2

    Taxable income (tax return) 66

    25 -9

    Enacted tax rate 40% 40% 40%


    Tax payable currently 26.4
    Deferred tax liability 10
    Deferred tax asset (3.60)
    Deferred
    Tax
    Liab. Asset
    Ending balances (balances currently needed): 10 3.60
    Less: beginning balances: -2.8 -1.2
    Changes needed to achieve desired balances 7.2 2.4

    So journal entry will be

    Income tax expense 31.2


    Deferred tax asset 2.4
    Deferred tax liability 7.2
    Income tax payable 26.4

    Ques 2
    ($ in millions)
    Pretax income 76
    Income tax expense -31.2
    Net income 44.8
    Ques 3)
    ($ in millions)
    Related Balance Classification Future Deferred
    current-C Taxable Tax (Asset)
    (Deductible) Tax Liability
    Sheet Account noncurrent-N Amounts Rate C NC
    Receivable – installment sales C 2 40% 0.8
    Receivable – installment sales NC 2 40% 0.8
    Depreciable assets NC 21 40% 8.4
    Allowance – uncollectible accounts C -2 40% -0.8
    Liability – paid future absences C -4 40% -1.6
    Liability – paid future absences NC -3 40% -1.2

    Net current liability (asset) -1.6


    Net noncurrent liability (asset) 8

    So we have deferred tax amounts

    Current Assets 1.6


    Long term labilties 8
    Ques 1)
    Future Future Future
    Taxable Taxable AmDeductible
    ($ in millions)
    (Deductible) [total] Amounts
    Amounts [total]
    2019 2020
    Pretax accounting income 98
    Permanent difference:
    Fine paid 3
    Temporary differences:
    Installment sales -9 5 5 10
    Depreciation -21 9 21 30
    Warranty expense 1 -3 -3
    Paid future absences 15 -10 -5 -15
    Loss contingency -6

    Taxable income (tax return) 81

    40 -18

    Enacted tax rate 40% 40% 40%


    Tax payable currently 32.4
    Deferred tax liability 16
    Deferred tax asset (7.20)
    Deferred
    Tax
    Liab. Asset
    Ending balances (balances currently needed): 16 7.20
    Less: beginning balances: -4 -2.8
    Changes needed to achieve desired balances 12 4.4

    So journal entry will be

    Income tax expense 40


    Deferred tax asset 4.4
    Deferred tax liability 12
    Income tax payable 32.4

    Ques 2
    ($ in millions)
    Pretax income 98
    Income tax expense -40
    Net income 58
    Ques 3)
    ($ in millions)
    Related Balance Classification Future Deferred
    current-C Taxable Tax (Asset)
    (Deductible) Tax Liability
    Sheet Account noncurrent-N Amounts Rate C NC
    Receivable – installment sales C 5 40% 2
    Receivable – installment sales NC 5 40% 2
    Depreciable assets NC 30 40% 12
    Allowance – uncollectible accounts C -3 40% -1.2
    Liability – paid future absences C -10 40% -4
    Liability – paid future absences NC -5 40% -2

    Net current liability (asset) -3.2


    Net noncurrent liability (asset) 12

    So we have deferred tax amounts

    Current Assets 3.2


    Long term labilties 12
    Ques 1)
    Future Future Future
    Taxable Taxable AmDeductible
    ($ in millions)
    (Deductible) [total] Amounts
    Amounts [total]
    2019 2020
    Pretax accounting income 88
    Permanent difference:
    Fine paid 3
    Temporary differences:
    Installment sales -7 4 4 8
    Depreciation -20 10 17 27
    Warranty expense 2 -3 -3
    Paid future absences 13 -7 -6 -13
    Loss contingency -2

    Taxable income (tax return) 77

    35 -16

    Enacted tax rate 40% 40% 40%


    Tax payable currently 30.8
    Deferred tax liability 14
    Deferred tax asset (6.40)
    Deferred
    Tax
    Liab. Asset
    Ending balances (balances currently needed): 14 6.40
    Less: beginning balances: -3.2 -1.6
    Changes needed to achieve desired balances 10.8 4.8

    So journal entry will be

    Income tax expense 36.8


    Deferred tax asset 4.8
    Deferred tax liability 10.8
    Income tax payable 30.8

    Ques 2
    ($ in millions)
    Pretax income 88
    Income tax expense -36.8
    Net income 51.2
    Ques 3)
    ($ in millions)
    Related Balance Classification Future Deferred
    current-C Taxable Tax (Asset)
    (Deductible) Tax Liability
    Sheet Account noncurrent-N Amounts Rate C NC
    Receivable – installment sales C 4 40% 1.6
    Receivable – installment sales NC 4 40% 1.6
    Depreciable assets NC 27 40% 10.8
    Allowance – uncollectible accounts C -3 40% -1.2
    Liability – paid future absences C -7 40% -2.8
    Liability – paid future absences NC -6 40% -2.4

    Net current liability (asset) -2.4


    Net noncurrent liability (asset) 10

    So we have deferred tax amounts

    Current Assets 2.4


    Long term labilties 10
    Ques 1)
    Future Future
    Taxable Taxable Am
    ($ in millions)
    (Deductible) [total]
    Amounts
    2012 2013
    Pretax accounting income 76
    Permanent difference:
    Fine paid 2
    Temporary differences:
    Installment sales -3 2 2 4
    Depreciation -15 8 13 21
    Bad debts 1 -2
    Paid future absences 7 -4 -3
    Loss contingency -2

    Taxable income (tax return) 66

    25

    Enacted tax rate 40% 40%


    Tax payable currently 26.4
    Deferred tax liability 10
    Deferred tax asset
    Deferred
    Tax
    Liab.
    Ending balances (balances currently needed): 10
    Less: beginning balances: -2.8
    Changes needed to achieve desired balances 7.2

    So journal entry will be

    Income tax expense 31.2


    Deferred tax asset 2.4
    Deferred tax liability 7.2
    Income tax payable 26.4

    Ques 2
    ($ in millions)
    Pretax income 76
    Income tax expense -31.2
    Net income 44.8
    Ques 3)
    Future ($ in millions)
    Deductible Related Balance
    Amounts
    [total]
    Sheet Account
    Receivable – installment sales
    Receivable – installment sales
    Depreciable assets
    Allowance – uncollectible accounts
    Liability – paid future absences
    Liability – paid future absences
    -2
    -7 Net current liability (asset)
    Net noncurrent liability (asset)

    So we have deferred tax amounts

    -9 Current Assets
    Long term labilties
    40%

    (3.60)
    Deferred
    Tax
    Asset
    3.60
    -1.2
    2.4
    Classification Future Deferred
    current-C Taxable Tax (Asset)
    (Deductible) Tax Liability
    noncurrent-N Amounts Rate C NC
    C 2 40% 0.8
    NC 2 40% 0.8
    NC 21 40% 8.4
    C -2 40% -0.8
    C -4 40% -1.6
    NC -3 40% -1.2

    -1.6
    8

    1.6
    8

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