Answers - V2Chapter 5 2012.pdf

7/26/2019 Answers - V2Chapter 5 2012.pdf

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CHAPTER 5INCOME TAXES

PROBLEMS

5-1. a. Nontaxable

b.

Nondeductiblec. Nondeductible

d. Temporary difference – Future taxable amount

e. Temporary difference – Future taxable amount

f. Temporary difference – Future deductible amountg. Temporary difference – Future deductible amount

5-2.Pretax financial income P11,000,000 Add Nondeductible expenses (b + c) 600,000 + 40,000 640,000

Less Nontaxable income (a) (3,000,000)Financial income subject to tax P 8,640,000 Add Future deductible amounts (f + g) 750,000 + 400,000 1,150,000

Less Future taxable amounts (d + e) 1,500,000 + 1,000,000 (2,500,000)Taxable income P7,290,000

Income tax expense – Current 2,187,000

Income tax payable 2,187,00030% x 7,290,000

Income tax expense – Deferred 750,000

Deferred tax liability 750,000

30% x 2,500,000

Deferred tax asset 345,000

Income tax expense – Deferred 345,00030% x 1,150,000

or one compound entry may be made as follows:

Income tax expense – Current 2,187,000Income tax expense – Deferred 405,000


Income tax payable 2,187,000


5-3. (Luzon Corporation)

(a) Pretax financial income P3,000,000Future taxable amount (1,800,000)Taxable income P1,200,000

Income tax payable: 30% x 1,200,000 P360,000

(b) Income tax expense – Current 360,000

Income tax expense – Deferred 540,000Income tax payable 360,000


30% x 1,200,000 = 360,00030% x 1,800,000 = 540,000



Chapter 5 - Income Taxes

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5-4. (Visayas Corporation)(a) Pre tax financial income P2,000,000

Future deductible amount 1,550,000Taxable income P3,550,000Income tax payable: 30% x 3,550,000 P1,065,000

(b) Income tax expense-Current 1,065,000Deferred tax asset 465,000


Income tax eenefit-Deferred 465,000

5-5. (Mindanao Corporation)

Income tax expense – Current 1,560,000

Deferred tax asset 600,000Deferred tax liability 185,000Income tax expense – Deferred (Benefit) 415,000

Income tax payable 1,560,00030% x 5,200,000 = 1,560,00030% x 2,000,000 = 600,000

(30% x 500,000) + (35% x 100,000) = 185,000

5-6. (Samar, Inc.)Income tax expense – Current (30% x 2,000,000) P 600,000

Income tax expense – Deferred (180,000 – 159,000) (21,000)

Income tax expense – Total P 579,000Income tax payable (see above) P 600,000

Deferred tax asset: 30% x (360,000 + 240,000) P 180,000Deferred tax liability: 30% x 530,000 P 159,000

5-7. (Bohol Company)Taxable income P11,998,000

Future deductible amount:

Book depreciation in excess of tax depreciation (430,000)Nontaxable income:

Proceeds from life insurance policy upon death of officer 1,250,000

Pretax financial income P12,818,000

5-8. (Wall Services)(a) Schedule of reversal of the temporary differences

2013 140,000 x 32% P 44,800

2014 320,000 x 34% 108,8002015 240,000 x 36% 86,400

Total P240,000

Pretax financial income P2,200,000

Add nondeductible expenses 400,000

Less nontaxable revenues ( 140,000)Financial income subject to tax P2,460,000

Future taxable amounts ( 700,000)

Taxable income P1,760,000Tax rate x 30 %

Income tax payable P 528,000Deferred tax liability (see above) P 240,000




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(b) Income tax expense – Current 528,000Income tax payable 528,000

Income tax expense – Deferred 240,000Deferred tax liability 240,000

(c) Income from continuing operations before income tax P2,200,000Income tax expense:

Current P528,000

Deferred 240,000 768,000

Net income P1,432,000

5-9. (Daniel Company)

(a)Straight Line SYD Difference

2012 500,000 800,000 (300,000)

2013 500,000 600,000 (100,000)

2014 500,000 400,000 100,0002015 500,000 200,000 300,000

Carrying Amount Tax Base Difference

12/31/2012 1,500,000 1,200,000 300,00012/31/2013 1,000,000 600,000 400,000

12/31/2014 500,000 200,000 300,00012/31/2015 0 0 0

2012 2013 2014 2015

Taxable income 800,000 890,000 1,200,000 1,500,000Future taxable amount 300,000 100,000

Additional taxable amount

(reversal) ( 100,000) (300,000)

Pretax accounting income 1,100,000 990,000 1,100,000 1,200,000

(b) Deferred tax liability at the end of each year is as follows:2012 300,000 x 30% P 90,000

2013 400,000 x 30% 120,0002014 300,000 x 30% 90,000

2015 0 0

(c) Journal entries to record current income tax:

2012 2013

Income tax expense-Current 240,000 267,000Income tax payable 240,000 267,000

(30% x 800,000) (30% x 890,000)

2014 2015

Income tax expense-Current 360,000 450,000Income tax payable 360,000 450,000

(30% x 1,200,000) (30% x 1,500,000)




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Journal entries to record deferred income tax:December 31, 2012:

Income tax Expense-Deferred 90,000Deferred tax liability 90,000

December 31, 2013:

Income tax expense – Deferred 30,000Deferred tax liability 30,000

120,000 – 90,000 = 30,000

December 31, 2014:

Deferred tax liability 30,000Income tax expense-Deferred (Benefit) 30,000

90,000 – 120,000 = 30,000 decrease

December 31, 2015:Deferred tax liability 90,000

Income tax expense-Deferred (Benefit) 90,0000 – 90,000 = 90,000 Decrease

(d)

2012 2013 2014 2015Income tax expense:

Current P 240,000 P 267,000 P 360,000 P 450,000Deferred (Benefit) 90,000 30,000 ( 30,000) (90,000)

Total income tax

expense P 330,000 P 297,000 P 330,000 P 360,000(e)

2010 2011 2012 2013Income before income tax P1,100,000 P 990,000 P1,100,000 P1,200,000

Less income tax

expense (see above) 330,000 297,000 330,000 360,000

Net income P 770,000 P 693,000 P 770,000 P 840,000

5-10. (Jude Company)(a) Future taxable amount

Carrying amount of inventories > Tax Base P 100,000Carrying amount of building & equipment > Tax Base 1,800,000

P 1,900,000

Future Deductible AmountCarrying amount of accounts receivable < Tax Base P200,000Carrying amount of warranty > Tax Base 800,000

Carrying amount of unearned rent > Tax Base 500,000P 1,500,000

(b) Income tax payable P1,500,000Deferred tax assets (1,500,000 x 30%) P 450,000

Deferred tax liability (1,900,000 x 30%) P 570,000

(c) Income tax expense-Current 1,500,000


Income tax expense-Deferred 75,000Deferred tax asset 75,000

450,000 – 525,000




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Deferred tax liability 830,000Income tax benefit-Deferred 830,000

1,400,000 – 570,000

5-11. (Capetown Company)

Tax rate = 180,000/600,000 = 30%

Income tax expense – current 300,000

Income tax payable 300,000

30% x 1,000,000


Income tax benefit – deferred 60,000

End (30% x 800,000) = 240,000Beg 180,000

Increase 60,000

5-12 (Conchita Corporation)

(a) Deferred tax liability, 12/31/2012

2M x 30% P600,000

(b) Income tax expense – current 900,000

Income tax payable 900,000

3M x 30%

Deferred tax liability 40,000Income tax expense – deferred 40,000

Beg. 640,000End, revised due to

change in tax rate 600,000

Decrease in DTL 40,000

5-13 (Britanny Company)(a) Income tax expense – current

3M x 30% P900,000

Previous payment in 2012 500,000Income tax payable, 12/31/2012 P400,000

(b) Income tax expense – current 400,000Income tax payable 400,000

Deferred tax liability 30,000Deferred tax asset 30,000

DTL, 12/31/12 (400,000 x 30%) 120,000

DTL, 1/1/12 150,000

Decrease in DTL 30,000

DTA, 12/31/12 (200,000 x 30%) 60,000

DTA, 1/1/12 90,000Decrease in DTA 30,000

(c) Total income tax expense

Current P900,000Deferred -0-




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Total income tax expense P900,000

Pretax profit P2,800,000Income tax expense 900,000

Profit P1,900,000

MULTIPLE CHOICE QUESTIONSTheoryMC1 C MC6 C MC11 C

MC2 C MC7 D MC12 C

MC3 C MC8 D MC13 D

MC4 D MC9 D MC14 B

MC5 D MC10 C MC15 B

ProblemsMC16 B 1,800,000 x 35% = 630,000

MC17 B Excess of Book Value > Tax Basis of Equipment

MC18 B 2,000,000 x 30% + (1,000,000 x 35%) = 950,000

MC19 D 10,000,000 x 30% = 3,000,000

MC20 C (8,000,000 – 4,000,000) x 30% = 1,200,000

MC21 B [(700,000 x 30%) + (1,400,000 x 35%)] – [(500,000 x 30%) + (1,000,000 x

35%)] = 700,000 – 500,000 = 200,000 (all non-current)

MC22 C 1,200,000 – 750,000 = 450,000; 450,000 x 35% = 157,500

MC23 B 1,500,000 x 30% = 450,000

MC24 D 6,000,000 x 30% = 1,800,000

MC25 C 9,000,000 x 30% = 2,700,000

MC26 D 42,000 / 30% = 140,000; 600,000 + 140,000 = 740,000

MC27 C 150,000 x 30% = 45,000

MC28 D 5,000,000 – 900,000 + 1,200,000 + 200,000 = 5,500,000;5,500,000 x 30% = 1,650,000

MC29 C 200,000 – 40,000 = 160,000; 160,000 x 30% = 48,000

MC30 B 150,000 x 35% = 52,500; 150,000 x 35% = 52,500; 150,000 x 30% = 45,000

52,500 + 52,500 + 45,000 = 150,000

MC31 B 95,000 x 38% = 36,100MC32 D 6,500,000 x 30% = 1,950,000 – 900,000 = 1,050,000

MC33 C (2,600,000 – 1,400,000) x 38% = 456,000

MC34 D The deferred tax asset cannot be offset against the deferred tax liability becausethey will not reverse simultaneously.

MC35 D (3,000,000 x 30%) – (5,000,000 x 30%) + (4,000,000 x 30%) = 600,000

MC36 C See computation below

MC37 C See computation below

MC38 D 172,500 / 30% = 575,000; 3,000,000 + 575,000 = 3,575,000

MC39 D 1,800,000 – 80,000 + 60,000 = 1,780,000; 1,780,000 x 30% = 534,000

MC40 B 2,000,000–100,000–120,000+180,000 = 1,960,000; 1,960,000 x 30%=588,000

MC41 A 5,000,000 – 500,000 + 200,000 – 4,000,000 + 1,800,000 = 2,500,000

2,500,000 x 30% = 750,000

MC42 A (5,000,000 + 400,000 – 600,000) x 30% = 1,440,000

Items 36 and 37:

Pretax accounting income P 1,000,000

Future deductible amount (accrued warranty cost) 1,200,000

Future taxable amount (accrual basis profit > cash basis profit (5,000,000)

Operating loss carry-forward (for tax purposes) P 2,800,000




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Income tax expense

Increase in deferred tax liability 5,000,000 x 30% P 1,500,000

Less: increase in deferred tax asset(from accrued warranty cost) = 1,200,000 x 30% P 360,000

(from operating loss carry forward)= 2,800,000 x 30% x 40% 336,000

Total deferred tax asset P 696,000

Income tax expense P 804,000

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Answers - V2Chapter 5 2012.pdf