CHAPTER 16

Problem 16-1
1. Journal Entries for 2020

a. Income tax expense 450,000

Income tax payable (30% x 1,500,000) 450,000

b. Income tax expense 150,000

Deferred tax liability (30% x 500,000) 150,000

c. Income tax payable 200,000

Cash 200,000

2. Total income tax expense for 202

Current tax expense 450,000

Deferred tax expense 150.000
TOTAL INCOME TAX EXPENSE 600,000

Problem 16-2
1. Journal Entries

a. Income tax expense 1,200,000

Income tax payable (30% x 4,000,000) 1,200,000

b. Deferred tax asset 300,000

Income tax benefit (30% x 1,000.000) 300,000

c. Income tax payable 500,000

Cash 500,000

2. Compute the total income tax expense for 2020

Current tax expense 1,200,000

Income tax benefit (300.000)
TOTAL INCOME TAX EXPENSE 900.000
Problem 16-3
1. Journal Entries for 2020 and 2021

2020
1. Income tax expense 2,100,000
Income tax payable (30% x 7,000,000) 2,100,000

2. Deferred tax asset 300,000

Income tax benefit (30%x 1,000,000) 300,000

2021
1. Income tax expense 2,400,000
Income tax payable (30% x 8,000,000) 2,400,000

2. Deferred tax asset 300,000

Income tax benefit (30%x 1,000,000) 300,000

2. Income statement presentation for 2020 and 2021

2020
Income before income tax 6,000,000
Income tax expense:
Current tax expense 2,100,000
Income tax benefit (300.000) 1,800.000
NET INCOME FOR 2020 4200.000

2021
Income before income tax 9,000,000
Income tax expense:
Current tax expense 2,400,000
Income tax benefit 300.000 2,700.000
NET INCOME FOR 2021 6,300.000

Problem 16-4
1. Journal Entries for 2020 and 2021

2020
a. Income tax expense 1,500,000
Income tax payable (30% x 5,000,000) 1,500,000

b. Deferred tax asset 150,000

Income tax benefit (30%x 1,000,000) 150,000
2021
a. Income tax expense 2,250,000
Income tax payable (30% x 7,500,000) 2,250,000

b. Deferred tax asset 150,000

Income tax benefit 150,000

2. Income statement presentation

2020
Income before income tax 5,500,000
Income tax expense:
Current tax expense 1,500,000
Income tax benefit 150,000 1,650,000
NET INCOME FOR 2021 3,850,000

2021
Income before income tax 7,000,000
Income tax expense:
Current tax expense 2,250,000
Income tax benefit 150,000 2,100.000
NET INCOME FOR 2021 4,900,000

Problem 16-5
Journal Entries for 2020, 2021 and 2022

2020
a. Income tax expense 750,000
Income tax payable (30% x 2,400,000) 750,000

b. Income tax expense 180,000

Deferred tax liability 180,000

2021
a. Income tax expense 1,080,000
Income tax payable (30% x 3,600,000) 1,080,000

b. Income tax expense 450,000

Deferred tax liability 450,000
2022
a. Income tax expense 1,860,000
Income tax payable (30% x 6,200,000) 1,860,000
b. Income tax expense 630,000
Deferred tax liability 630,000

Problem 16-6
1. Journal Entries

2020
a. Income tax expense 1,080,000
Income tax payable 1,080,000

b. Income tax expense 45,000

Deferred tax liability 45,000

2021
a. Income tax expense 1,110,000
Income tax payable 1,110,000

b. Income tax expense 15,000

Deferred tax liability 15,000

2022
a. Income tax expense 1,140,000
Income tax payable 1.140,000

b. Deferred tax liability 15,000

Income tax expense 15,000

2023
a. Income tax expense 1,170,000
Income tax payable 1,170,000

b. Deferred tax liability 45,000

Income tax expense 45,000

2. Statement of Financial Position on December 31, 2021

Noncurrent liabilities:
Deferred tax liability 60,000
Problem 16-7
1. Journal Entries for 2020, 2021, 2020

2020
a. Income tax expense 756,000
Income tax payable 756,000

b. Deferred tax asset 156,000

Income tax benefit 156,000

2021
a. Income tax expense 852,000
Income tax payable 852,000

b. Income tax expense 48,000

Deferred tax asset 48,000

2022
a. Income tax expense 1,164,000
Income tax payable 1,164,000

b. Income tax expense 36,000

Deferred tax asset 36,000

2023
a. Income tax expense 1,428,000
Income tax payable 1,428,000

b. Income tax expense 72,000

Deferred tax asset 72,000

2. Statement of Financial Position on December 31, 2021

Noncurrent assets:
Deferred tax asset 108,000
Problem 16-8

1. Journal Entries

a. Income tax expense 2,280,000

Income tax payable (30% x 7,600,000) 2,280,000

b. Income tax expense 300,000

Deferred tax liability (306 x 1,000,000) 300,000

c. Deferred tax asset 210,000

Income tax benefit (30%x 700,000) 210,000

2. Income statement presentation

Income before income tax 7,900,000

Income tax expense:
Current tax expense 2,280,000
Deferred tax expense 300,000
Income tax benefit ( 210.000) 2,370.000
NET INCOME FOR 2020 5,530.000

Statement of financial position presentation

Noncurrent assets:
Deferred tax asset 210,000
Current liabilities:
Income tax payable 2,280,000
Noncurrent liabilities:
Deferred tax liability 300,000

3. Net deferred tax

Deferred tax expense 300,000

Income tax benefit 210,000
NET DEFERRED TAX EXPENSE 90,000
Problem 16-9
1. To record the deferred tax liability, deferred tax asset and current tax expense.

Pretax accounting income 13,000,000

Future taxable amount (7,000,000)
Future deductible amount 2,000,000
TAXABLE INCOME 8,000,000

Current tax expense (30% x 8,000,000) 2,400,000

a. Income tax expense 2,100,000

Deferred tax liability (30% x 7,000,000) 2,100,000

b. Deferred tax asset 600,000

Income tax benefit (30%x 2,000,000) 600,000

c. Income tax expense 2,400,000

Income tax payable 2,400,000

2. Income statement presentation

Income before income tax 13,000,000

Income tax expense:
Current tax expense 2,400,000
Deferred tax expense 2,100,000
Income tax benefit (600,000) 3,900,000
NET INCOME 9,100,000

Problem 16-10
1. To record the revaluation on January 1, 2020.

Cost Replacement cost Appreciation

Equipment 8,000,000 12,000,000 4,000,000
Accumulated depreciation
8,000,000 x 3/8) 3,000,000
(12,000,000 x 3/8) 4,500,000 1,500,000
CA/SV/RS 5,000,000 7,500,000 2,500,000

Equipment 4,000,000
 Accumulated depreciation 1,500,000
Revaluation surplus 2,500,000

2. To record deferred tax liability on January 1, 2020

Revaluation surplus 750,000

Deferred tax liability (30% x 2,500,000) 750,000

3. To record the current tax expense for 2020.

Pretax income before depreciation 10,000,000

Depreciation on cost (5,000,000/5) (1,000,000)
TAXABLE INCOME 9,000,000

Current tax expense (30% x 9,000,000) 2,700,000

Income tax expense 2,700,000

Income tax payable 2,700,000

4. Adjustment of the deferred tax liability on December 31, 2020.

Deferred tax liability 150,000

Income tax expense 150,000

Equipment at replacement cost 12,000,000

Accumulated depreciation:
January 1, 2020 4,500,000
Depreciation on revalued amount for 2020 1,500,000 6,000,000
CARRYING AMOUNT- December 31,2020 6,000,000

Equipment at cost 8,000,000

Accumulated depreciation:
January 1, 2020 3,000,000
Depreciation on cost for 2020 1,000,000 4,000,000
TAX BASE-December 31,2020 4,000,000

Carrying amount- December 31,2020 6,000,000

Tax base- December 31,2020 4,000,000
TAXABLE TEMPORARY DIFFERENCE 2,000,000

Deferred tax liability- 12/31/2020 600,000

Deferred tax liability- January 1, 2020 750,000
DECREASE IN DEFERRED TAX LIABILITY (150,000)

5. Adjustment of the revaluation surplus on December 31, 2020.

Revaluation surplus- January 1, 2020 2,500,000

Deferred tax liability (30% x 2,500,000) 750,000
NET REVALUATION SURPLUS 1,750,00

Annual Realization (1,750,000 / 5) 350,000

Revaluation surplus 350,000

Retained earnings 350,000

6. Income statement presentation

Income before depreciation 10,000,000

Depreciation on revalued amount 1,500,000
Income before income tax 8,500,000
Income tax expense:
Current tax expense 2,700,000
Decrease in deferred tax liability (150,000) 2,550,000
Net income 5,950,000

Problem 16-11

1. Deferred tax liability on December 31, 2020.

Motor vehicle:
Carrying amount 1,650,000
Tax base 1,250,000
TAXABLE TEMPORARY DIFFERENCE 400,000

Deferred tax liability (30% x 400,000) 120,000

2. Deferred tax asset on December 31, 2020.
 Carrying Tax base Deductible
amount temporary
Account Receivable 1,500,000 1,750,000 250,000
Provision for warranty 120,000 0 120,000
Deposits received in advance 150,000 0 150,000
Total deductible temporary differences 520,000

Deferred tax asset (30% x 520,000) 156,000

3. Net deferred tax benefit

Deferred tax liability 120,000

Deferred tax asset (156,000)
NET DEFERRED TAX BENEFIT ( 36,000)

4. Current tax expense for 2020.

Financial income 8,000,000

Taxable temporary difference (400,000)
Deductible temporary differences 520,000
Taxable income 8,120,000

Current tax expense (30% x 8,120,000) 2,436,000

5. Total income tax expense for 2020

Current tax expense 2,436,000

Net deferred tax benefit ( 36,000)
TOTAL INCOME TAX EXPENSE 2,400,000

Problem 16-12

Carrying amount Tax base Difference

Property 10,000,000 7,000,000 3,000,000

Plant and equipment 5,000,000 4,000,000 1,000,000

Inventory 4,000,000 6,000,000 2,000,000

Trade receivables 3,000,000 4,000,000 1,000,000

Trade payable 6,000,000 6,000,000 -

Cash 2,000,000 2,000,000 -

1. To record the current tax expense.

Accounting income 9,000,000

Future taxable amount (4,000,000)

Future deductible amount 3,000,000

Taxable income 8,000,000

Income tax expense (30% x 8,000,000) 2,400,000

Income tax payable 2,400,000

2. To record deferred tax liability.

Property 3,000,000

Plant and equipment 1,000,000

Future taxable amount 4,000,000

Deferred tax liability (30% x 4,000,000) 1,200,000

Income tax expense 1,200,000

Deferred tax liability 1,200,000

3. To record deferred tax asset.

Inventory 2,000,000

Trade receivables 1,000,000

Future deductible amount 3,000,000

Deferred tax liability (30% x 3,000,000) 900,000

Deferred tax asset 900,000

Income tax benefit 900,000

4. Net deferred tax expense

Deferred tax liability 1,200,000

Deferred tax asset 900,000
NET DEFERRED TAX BENEFIT 300,000

5. Total income tax expense

Current tax expense 2,400,000

Net deferred tax benefit 300,000

TOTAL INCOME TAX EXPENSE 2,700,000

Problem 16-13 Answer C. 1,770,000

Financial income 6,200,000

Interest revenue on government bonds ( 200,000)

Excess tax depreciation ( 100,000)

Taxable income 5,900,000

Current tax expense (30% x 5,900,000) 1,770,000

Problem 16-14 Answer C. 1,650,000

Income before income tax 6,000,000

Permanent difference (500,000)

Taxable Income 5,500,000

Total income tax expense (30% x 5,500,000) 1,650,000

Problem 16-15 Answer A. 111,000

Pretax income 400,000

Permanent difference 15,000

Accounting income subject to tax 415,000

Temporary difference:

Royalty income (20,000)

Depreciation (25,000)

Taxable income 370,000

Income tax expense (370,000 x 30%) 111,000

Problem 16-16 Answer C 50,000

Pretax income 800,000

Nontaxable gain (350,000)

Excess of depreciation for book purposes ( 50,000)

Taxable income 400,000

Current tax expense (400,000x30%) 120,000

Estimated tax 70,000

Current tax liability 50,000

Problem 16-17 Answer A. 45,000

Taxable income 150,000

Multiply by income tax rate 30%

Current provision 45,000

Problem 16-18 Answer D. 327,000

Pretax accounting income 1,000,000

Permanent difference 90,000

Accounting income subject to tax 1,090,000

Temporary differences (110,000)

Taxable income 980,000

Current provision for income tax (980,000 x 30%) 294,000

Total income tax expense (30% x 1,090,000) 327,000

Problem 16-19 Answer B. 100,000

Net income per book 900,000

Permanent difference (200,000)

Accounting income subject to tax 700,000

Temporary difference:

Rent received in advance 150,000

Excess tax depreciation (100,000)

Taxable income 750,000

Current tax provision (750,000 x 30%) 225,000

Estimated tax payment in the current year 125,000

Current tax liability 100,000

Problem 16-20 Answer B. 2,790,000

Taxable income 2,400,000

Future taxable amount in 2020 (1,350,000 - 960,000) 390,000

Pretax financial income 2,790,000

Problem 16-21 Answer D. 75,000

Noncurrent deferred tax liability is P75,000

Problem 16-22 Answer D

Current tax expense 260,000

Deferred asset (400,000 - 300,000) 100,000

Total income tax expense 160,000

Problem 16-23 Answer B

Increase deferred tax liability (1,500,000 - 1,000,000) 500,000

Deferred tax asset 400,000

Net deferred tax expense 900,000

Problem 16-24 Answer C

Decrease in deferred tax asset 90,000

Increase in deferred tax liability (30% x 700,000) 210,000

Deferred tax expense 300,000

Problem 16-25 Answer C

Deferred tax asset (40% x 300,000) 120,000

Deferred tax liability (40% x 2,900,000) 1,160,000

Net deferred tax expense 1,040,000

Problem 16-26 Answer C. 800,000

The future taxable amount is the temporary difference in equipment P800,000.

Problem 16-27 Answer A. 150,000

Taxable temporary difference on December 31 500,000

Tax rate 30%

Deferred tax liability 150,000

Problem 16-28 Answer C. 600,000

Increase in deferred tax liability (30% x 3,500,000) 1,050,000

Increase in deferred tax asset (30%% x 1,500,000) (450,000)

Net deferred tax expense 600,000

Problem 16-29 Answer B. 1,320,000

Accounting income 8,400,000

Taxable income (4,000,000)

Future taxable amount 4,400,000

Tax rate 30%

Deferred tax liability 1,320,000

Problem 16-30 Answer B

Future taxable amount (1,800,000 - 900,000) 900,000

Tax rate 30%

Deferred tax liability 270,000

Problem 16-31 Answer D

Deferred tax asset – Singapore 800,000

Deferred tax liability – Singapore 600,000

Deferred tax asset 200,000

Deferred tax liability - Malaysia 300,000

Problem 16-32

1. Answer B. 420,000

Taxable income 1,400,000

Tax rate 30%

Current tax expense 420,000

2. Answer C. 465,000
Pretax financial income 1,600,000

Nontaxable interest received ( 50,000)

Taxable income 1,55,,000

Total tax expense (30%x 1,550,000) 465,000

3. Answer C. 75,000

Taxable temporary differences 250,000

Multiply by tax rate 30%

Deferred tax liability 25,000

4. Answer A. 30,000

Deductible temporary difference 100,000

Multiply by tax rate 30%

Deferred tax asset 30,000

Problem 16-33

1. Answer A. 2,100,000

Taxable income 7,000,000

Multiply by tax rate 30%

Current tax expense 2,100,000

2. Answer B. 2,340,000

Taxable income 7,000,000

Installment accounts receivable 1,000,000

Litigation ability ( 200,000)

Accounting income subject to tax 7,800,000

Total tax expense (7,800,000 x 30%) 2,340,000

3. Answer C. 300,000

Taxable temporary difference 1,000,000

Multiply by tax rate 30%

Deferred tax liability 300,000

4. Answer C. 60,000

Deductible temporary difference 200,000

Multiply by tax rate 30%

Deferred tax asset 60,000

Problem 16-34

1. Answer B. 360,000
2. Answer D. 678,000

Pretax financial income 2,500,000

Interest income received (360,000)

Excess on tax depreciation (160,000)

Rent receive in advance 280,000

Taxable income 2,260,00

Current tax expense (2,260,000 x 30%) 678,000

3. Answer A. 498,000

Pretax financial income 2,500,000

Multiply by tax rate 30%

Taxable income 750,000

Estimated tax payment 180,000

Income tax payable 570,000

4. Answer C. 642,000

Accounting income subject to tax (2,500,000 – 360,000) 2,140,000

Multiply by tax rate 30%

Total tax expense 642,000

Problem 16-35

1. Answer B. 360,000

Deductible temporary difference 1,200,000

Multiply by tax rate 30%

Deferred tax asset 360,000

2. Answer A. 1,020,000

Excess of tax depreciation 800,000

Gain on installment sales 2,600,000

Taxable temporary difference 3,400,000

Multiply by tax rate 30%

Deferred tax liability 1,020,000

3. Answer C. 660,000

Deferred tax liability 1,020,000

Deferred tax asset 360,000

Net deferred tax expense 660,000

4. Answer A.

Current tax expense (30% x 8,000,000) 2,400,000

Net deferred tax expense 60,000

Total tax expense 3,060,000

Problem 16-36

1. Answer B. 2,000,000

2. Answer A. 600,000

Warranty cost accrued (2,500,000 – 500,000) 2,000,000

Multiply by tax rate 30%

Deferred tax asset 600,000

3. Answer B. 4,500,000
Gross profit on installment sale (6,000,000 – 1,500,000) 4,500,000

Multiply by tax rate 30%

Deferred tax liability 1,350,000

4. Answer D. 0.
5. Answer C. 480,000

Current tax expense 0

Net deferred tax expense (1,350,000 - 870,000) 480,000

Total income tax expense 480,000