Republic of the Philippines

CAVITE STATE UNIVERSITY

CCAT Campus
Rosario, Cavite
 (046) 437-9505 /  (046) 437-6659
cvsurosario@cvsu.edu.ph
www.cvsu-rosario.edu.ph

BMGT-28 Tax Case Study

Mango Tree Corporation

The Mango Tree Corporation is organized in Rosario Cavite, and it operates within its close
proximity in Tanza and General Trias Cavite. It provides artistic services on a contract basis,
e.g., doing set design for films, plays, and processing digital information for film productions.
Mango Tree follows generally accepted accounting principles (GAAP), and it is required to
file tax returns in a calendar year.
Mango Tree holds no net operating loss (NOL) carryovers. Corporate policy is not to incur
income tax underpayment penalties.
Mango Tree’s CFO has asked for your assistance in generating information needed for the
corporation’s financial statements. The financial accounting records of Mango Tree for the
current year produce the following abbreviated trial balance. Other information is available
from last year’s tax file and supporting records. Follow all the public company disclosure
rules without regard to materiality or significance.
For items I and II, use the format found in the partially completed Trial Balance (Summary)
for Mango Tree. For items IV and V, use the format found in the Tax Provision worksheet,
filling in the shaded cells only. Both worksheets are attached.

I- Using the information provided, compute book income before taxes for Mango
Tree.
II- Identify and measure Mango Tree’s book-tax differences. Classify each of the
book-tax differences as temporary or permanent.
III- Your colleagues in the audit department took the trial balance amounts and first
computed the current state income taxes payable as Php 125, and the income
tax payable as Php 500. Complete the construction of the trial balance.
IV- Determine Mango Tree’s total tax provision for the year (i.e., the “tax accrual”).
Take the amounts that you derived in the trial balance, and from the tax payables
given in item III above, to make this computation. Hint: Compute the provision
first.
As adjusted by the tax department, net temporary differences are Php 392.
Your instructor can provide details of this accurate computation if you’d like.
Using the tax provision amount, compute the corporation’s effective tax rate
to be reported to management.
V- Summarize Edgewood’s changes in its Deferred Tax Assets/Liabilities for
the year, and prepare the journal entry to record these changes to the net
deferred tax balance.
Information from Mango Tree Files (all Php - K)

1. Mango Tree recorded an expense of Php 1,000 for its defined benefit retirement plans,
but only Php 750 of this amount qualified for an income tax deduction in the current year.
2. The interest income was received from bonds issued by Globe Telecom (Php 30).

3. The Deferred Revenue account was established because Mango Tree received full
payment last year on a contract for services, one-half of which Mango Tree performed
this year, and one-half of which it will perform next year.

4. Mango Tree holds life insurance policies on its five officers. Activity concerning these
policies this year included the following.

Proceeds collected, death of CIO Php 1,000

Premium paid, all policies Php 650
Increase in cash value, all policies Php 125

5. Mango Tree sold some of its investment land, held as a capital asset per a previous audit
settlement, at a Php 15 loss.
6. Mango Tree’s tax department reported a Php 44 total of documented expenses for meals.
7. Mango Tree truck drivers were responsible for Php 10 in speeding tickets, all of which the
company paid during the current year.
8. Mango Tree accrued a current-year tax expense of Php 625.00.

Mango Tree Corporation

Balance Sheet Summary 2023

Item Beginning of Year End of Year

Item Notes
Number Balance Balance
Book Bad Debt
1 Allowance
110 125

There were no
Book net asset cost vs acquisitions or
2 Tax basis
-115 -138
dispositions during
the year

3 Cumulative adjustment 40 75

Assets
Cash Php 1,500
Account
1,100
Receivable

Inventories 1,400

Property,
plant,
equipment, 2,000
net of
depriciation
Invetment
2,550
land
Notes
receivable, 210
long term
Deferred tax
40
assets □
All other
2,750
assets

Total Php 11,550

Trial Balance (Summary) (Php

1000)
Current Year 2022
Difference
Total Book Tax Temporary Permanent
Revenues, net of expenses with
no book-tax differences (including 10,000 10,000 10,000
interest expense and others
Cost of Goods Sold
-7,500 -7,500 -7,500

Fines Paid to Governments 10 -10 0 10

Bad Debt Expense 15 -15 0 15
Interest Income 42

Thank you!
Prepared by: Maggie Mae Macaranas
 I.
Php 10,000
Revenues (Net)
- 7,500
Cost of Goods Sold
- 10
Fines Paid to the Governments
- 15
Bad Debt Expense
42
Interest Income
10,000 – 7,500 + (-10) + (-15)
Book income before taxes:
+ 42
Book income before taxes
= Php 2,517

II.

Difference
Book Tax Temporary Permanent

Expense for Defines Benefit

1, 000 750 250 0
Retirement Plans

Interest Income from Globe

Telecom Bonds 30 30 0 0

Loss on Sales of Investment

15 15 0 0
Land
Documented Expenses for
44 44 0 0
Meals
Fines Paid to the Government 10 10 0 0
Current – Year Tax Expense 625 625 0 0

- Expense for Defined Benefit Retirement Plans:

Book Expense: Php 1,000
Tax Deductible Expense: Php 750
Book-Tax Difference: Php 1,000 - Php 750 = Php 250 (Temporary Difference)

- Interest Income from Globe Telecom Bonds:

Book Income: Php 42 (No book-tax difference, as it is not tax-deductible)

- Deferred Revenue:
Book Revenue: Not specified
Tax Revenue: Half of the contract amount (since half performed this year): Php 5,000
Book-Tax Difference: Not specified (More information is needed to calculate this)

- Life Insurance Policies:

Proceeds collected (death of CIO): Php 1,000 (Exempt from tax)
Premium paid: Php 650 (No book-tax difference, as it is not tax-deductible)
Increase in cash value: Php 125 (No book-tax difference, as it is not tax-deductible)
 - Sale of Investment Land:
Book Loss: Php 15
Tax Loss: Php 15
Book-Tax Difference: None (Temporary difference, as the timing is different between book
and tax)

- Documented Expenses for Meals:

Book Expense: Not specified
Tax Deductible Expense: Php 44
Book-Tax Difference: Not specified (More information is needed to calculate this)

- Speeding Tickets:
Book Expense: Php 10
Tax Deductible Expense: Php 10
Book-Tax Difference: None (Permanent difference, as it is not tax-deductible)

- Current-Year Tax Expense:

Book Expense: Php 625
Tax Expense: Php 625
Book-Tax Difference: None (Temporary difference, as it will be reversed upon tax payment)

III.
Revenues, net of expenses with no book-tax differences Php 10,000
Cost of Goods Sold
Fines Paid to Governments - 7,500
Bad Debt Expense 10
Interest Income 15
Defined benefit retirement plans 42
Life insurance policies - 250
Cumulative adjustment - 525
75

TOTAL Php 2,867

IV.
- Based on the trial balance, the current state income taxes payable amount to Php
125, and the income tax payable amount to Php 500. We can calculate the total tax
provision as follows:

Total tax provision = Income tax payable + Current state income taxes payable
Total tax provision = Php 500 + Php 125
Total tax provision = Php 625

- Given the net temporary differences amount of Php 392, we can calculate the
effective tax rate using the total tax provision:

Effective tax rate = Total tax provision / Net temporary differences

Effective tax rate = Php 625 / Php 392
Effective tax rate ≈ 1.59 or 159% (rounded to two decimal.)