RIFT VALLEY UNIVERSITY- ASELLA CAMPUS

DEPARTMENT OF ACCOUNTING AND FINANCE

Group Assignment
Target Groups: Weekend & Extension division students
General Instructions
 Members of the groups shall consist 5- 7 students
 The work should be in hand writing ( Computer work is not allowed unless the cover page)
 A neat and clear work will be awarded additional marks (incomplete work will be disqualified)
 Submission date will be on Final Exam day (no assignment will be accepted after that)
 Refer additional materials
 Students who are incomplete in their Mid exam shall physically contact the instructor during
submission of the assignment on Exam day After the exam.

1. The following information is related to ABC Company

1) Deferred tax liability, January 1, 2021, 40,000.
2) Deferred tax asset, January 1, 2021, 0.
3) Taxable income for 2021, 95,000.
4) Pretax financial income for 2021, 200,000.
5) Cumulative temporary difference at December 31, 2021, giving rise to future taxable amounts,
240,000.
6) Cumulative temporary difference at December 31, 2021, giving rise to future deductible amounts,
35,000.
7) Tax rate for all years, 40%.
8) The company is expected to operate profitably in the future.

Instructions

A) Compute income taxes payable for 2021.

B) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2021.
C) Prepare the income tax expense section of the income statement for 2021, beginning with the line
“Income before income taxes.”
2. The following information has been obtained for Microsoft Corporation.
1. Prior to 2017, taxable income and pretax financial income were identical.
2. Pretax financial income is 1,700,000 in 2017 and 1,400,000 in 2018.
3. On January 1, 2017, equipment costing 1,200,000 is purchased. It is to be depreciated on a
straight-line basis over 5 years for tax purposes and over 8 years for financial reporting
purposes.
4. Interest of 60,000 was earned on tax-exempt municipal obligations in 2018.
5. Included in 2017 and 2018 pretax financial income respectively is illegal receipts of
maintenance expense of 200,000 and 150,000 for 2017 & 2018 respectively, which is fully
taxable.
6. The tax rate is 35% for all periods.
7. Taxable income is expected in all future years.
Instructions
A. Compute taxable income and income taxes payable for 2018.
B. Prepare the journal entry to record 2018 income tax expense, income taxes payable, and
deferred taxes.
C. Prepare the bottom portion of Microsoft’s 2018 income statement, beginning with
“Income from continuing operations before income taxes.”
D. Indicate how deferred income taxes should be presented on the December 31, 2018,
balance sheet