Use the following information to answer items 1 to 3:

During the current year, Wilkins Company reported accounting income P9,000,000 before income tax. The company revealed the following
information for the current year:

Interest income on government bonds 700,000

Depreciation claimed on tax return in excess of depreciation per book 1,300,000
Warranty expense on the accrual basis 600,000
Actual warranty payment 300,000
Income reported from installment sale reported for tax purposes in excess of
income recorded per book 200,000
Income tax rate 30%

1. What is the current tax liability at year-end?

A. 2,250,000 B. 2,490,000 C. 2,700,000 D. 2,910,000

2. What is the (1) deferred tax liability and (2) deferred tax asset at year-end?
A. (1) 150,000; (2) 390,000 B. (1) 390,000; (2) 150,000
C. (1) 60,000; (2) 480,000 D. (1) 480,000; (2) 60,000

3. What is the total income tax expense for the year?

A. 2,250,000 B. 2,490,000 C. 2,700,000 D. 2,910,000

4. On January 1, 2018, Rat Company reported deferred tax liability of P1,000,000 and a deferred tax asset of P400,000. On
December 31, 2018, the company reported a deferred tax liability of P1,500,000 and a deferred tax asset of zero. What is the
deferred tax expense for 2018?
A. 100,000 B. 400,000 C. 500,000 D. 900,000

Use the following information to answer items 5 and 6:

Mekeni Company provided the following information at year-end:

Carrying amount Tax base

Accounts receivable 1,500,000 1,750,000
Motor vehicle 1,650,000 1,250,000
Provision for warranty 120,000 0
Deposit received in advance 150,000 0

The depreciation rates for accounting and taxation are 15% and 25%, respectively. The deposits are taxable when received and warranty
costs are deductible when paid.

An allowance for doubtful debts of P250,000 has been raised against accounts receivable for accounting purposes but such debt are
deductible only when written off as uncollectible. The tax rate is 30%.

5. What amount should be reported as deferred tax liability?

A. 36,000 B. 81,000 C. 120,000 D. 156,000

6. What amount should be reported as deferred tax asset?

A. 36,000 B. 81,000 C. 120,000 D. 156,000

Use the following information to answer items 7 to 12:

Unity Company is in the first year of operations and reported pretax accounting income of P4,000,000. The entity provided the following
information for the first year:

Premium on life insurance of key officer 200,000

Depreciation on tax return in excess of book depreciation 200,000
Interest on municipal bonds 50,000
Warranty expense 40,000
Actual warranty repairs 30,000
Bad debt expense 60,000
Ending balance in allowance for bad debts 40,000
Rent received in advance that will be recognized evenly over the next three years 300,000

7. How much is the accounting profit subject to tax?

A. 3,800,000 B. 4,000,000 C. 4,150,000 D. 4,300,000

8. What is the deferred tax liability at year-end?

A. 60,000 B. 75,000 C. 90,000 D. 105,000

9. What is the deferred tax asset at year-end?

A. 45,000 B. 60,000 C. 75,000 D. 105,000

10. What is the taxable income for the first year?

A. 3,800,000 B. 4,000,000 C. 4,150,000 D. 4,300,000

11. What is the total income tax expense for the first year?
A. 1,200,000 B. 1,245,000 C. 1,290,000 D. 1,335,000

FARQ 218 Page 1 of 3

 12. What is the current tax liability at year-end?
A. 1,200,000 B. 1,245,000 C. 1,290,000 D. 1,335,000

Dowell Company reported the following carrying amount of assets and liabilities at year-end:

Property 10,000,000
Plant and equipment 5,000,000
Inventory 4,000,000
Trade receivables 3,000,000
Trade payables 6,000,000
Cash 2,000,000

The value for tax purposes for property and for plant and equipment was P7,000,000 and P4,000,000, respectively. The entity has made
a provision for inventory obsolescence of P2,000,000 which is not allowable for tax purposes. Further, an impairment loss against trade
receivables of P1,000,000 has been made. This charge will not be allowed in the current year for tax purposes. The tax rate is 30%.

13. What amount should be reported as (1) deferred tax liability and (2) deferred tax asset at year-end?
A. (1) 300,000; (2) 0 B. (1) 2,700,000; (2) 0
C. (1) 1,200,000; (2) 900,000 D. (1) 3,600,000 ; (2) 900,000

Use the following information to answer items 14 and 15:

United Emirates Company began operations at the beginning of 2018. At the end of 2018, the company reported P12,000,000 income
before tax in the income statement but only P10,200,000 taxable income in the tax return. Analysis of the P1,800,000 difference revealed
that P1,000,000 was a permanent difference and P800,000 was a temporary tax liability difference related to a current asset. The enacted
tax rate for 2018 and future years is 30%.

14. What is the current tax expense?

A. 3,060,000 B. 3,300,000 C. 3,600,000 D. 3,900,000

15. What is the income tax expense to be reported in the income statement for the year 2018?
A. 3,060,000 B. 3,300,000 C. 3,600,000 D. 3,900,000
Jomari Company reported pre-tax financial income of P400,000 for 2016. In the computation of income taxes, the following data were
gathered:

Non-taxable gain 175,000

Depreciation deducted for tax purposes in excess of depreciation
deducted for book purposes 25,000
Tax payment made during 2016 27,500
Enacted tax rate 35%

16. What amount shall be reported as current tax liability?

A. 42,500 B. 51,250 C. 70,000 D. 78,750

Twinnie Company began operations on January 1, 2015. For external reporting, the company recognized revenue from all sales under
accrual method. However, in the tax return, the entity reported qualifying sales under the installment method. The gross profit on these
installment sales under each method was:

Accrual method Installment method

2015 1,600,000 600,000
2016 2,600,000 1,400,000

The income tax rate is 30%. There are no other temporary or permanent differences.

17. What amount should be reported as deferred tax asset or liability on December 31, 2016?
A. 660,000 asset B. 660,000 liability
C. 360,000 asset D. 360,000 liability

18. Breslin Co. had one temporary difference at the end of 2018 that will reverse and cause taxable amounts of P110,000 in 2019,
and P120,000 in 2020 and 2021. The company had also a deductible temporary difference of P150,000. The pre-tax financial
income for 2018 is P600,000 and the tax rate is 30%. There are no deferred taxes at the beginning of 2018. What is the net
deferred tax expense for 2018?
A. 45,000 B. 60,000 C. 105,000 D. 120,000

Cheng Lao Company located business in two jurisdictions, China and Korea. In both countries, the company has the legal right to offset
the taxes receivable and payable. The following information related to deferred tax assets and liabilities:

Amount Taxing jurisdiction

Deferred tax asset 500,000 China
Deferred tax liability 240,000 Korea
Deferred tax liability 410,000 China

19. How should the company present deferred taxes at year-end?

Deferred tax asset Deferred tax liability
A. 500,000 650,000
B. 0 150,000
C. 90,000 240,000
D. 240,000 90,000
FARQ 218 Page 2 of 3
Use the following information to answer items 20 to 24:
On December 31, 2018, the accounts of Hades Company have the same basis for accounting and tax purposes, except the following:

Carrying amount Tax base

Computer software cost 8,000,000 0
Equipment 24,000,000 30,000,000
Accrued liability – health care 4,000,000 0

In January 2018, the company incurred cost of P12,000,000 in relation to the development of a computer software product. The software
cost was appropriately capitalized and amortized over three years for accounting purposes using straight line. However, the total amount
was expensed in 2018 for tax purposes.

The equipment was acquired on January 1, 2018 for P40,000,000. The economic life is four years without residual value. The equipment
is depreciated using the sum of years’ digits method for accounting purposes and straight line for tax purposes.

In January 2018, the company entered into an agreement with the employees to provide health care benefits. The cost of such plan for
2018 was P4,000,000. This amount was accrued as expense in 2018 for accounting purposes. However, health care benefits are
deductible for tax purposes only when actually paid.

The pre-tax accounting income for 2018 is P26,000,000. The tax rate is 30% and there are no deferred taxes on January 1, 2018.

20. What is the current tax expense for 2018?

A. 4,800,000 B. 7,200,000 C. 7,800,000 D. 8,400,000

21. What is the deferred tax liability on December 31, 2018?

A. 1,200,000 B. 2,400,000 C. 3,000,000 D. 4,200,000

22. What is the deferred tax asset on December 31, 2018?

A. 1,200,000 B. 2,400,000 C. 3,000,000 D. 4,200,000

23. What is the deferred tax expense or benefit for 2018?

A. 600,000 benefit B. 600,000 expense C. 3,000,000 benefit D. 3,000,000 expense

24. What is the total tax expense for 2018?

A. 4,800,000 B. 7,200,000 C. 7,800,000 D. 8,400,000

FARQ 218 Page 3 of 3