Hoffman’s Hotel has total revenue of $900,000; expenses other than depreciation

Question

Hoffman’s Hotel has total revenue of $900,000; expenses other than depreciation of $400,000; depreciation expense for tax purposes of $250,000; and depreciation expense of $180,000 for reporting purposes. The tax rate is 35%. Calculate net income for reporting purposes and tax purposes and also calculate the deferred tax liability.



Bright company purchased 20% of the voting common stock of Bulb Company on January 1 and paid $400,000 for the investment. Bulb Company reported earnings of $300,000 for the fiscal year ended December 31. Cash dividends were paid during the year in the amount of $20,000.
1. Calculate the investment income and the ending balance in the investment account on the balance sheet for Bright Company on December using the cost method.
2. Calculate the investment income and the ending balance in the investment account on the balance sheet for Bright Company on December 31 using equity method.

Explanation / Answer

900,000-400,000-250,000=250,000 250,000*(1-.35)=162,500 (NI for tax purposes) 900,000-400,000-180,000=320,000 320,000*(1-.35)=208,000 (250,000-180,000)*.35=24,500 deferred tax liability 1) Investment 400,000 debit Cash 400,000 credit Cash 4,000 debit Div. Rev 4,000 credit Dec 31 Ending Bal. Investment 400,000 Div. rev 4,000 2) Investment 400,000 debit Cash 400,000 credit Investment 60,000 debit Rev from Investment 60,000 credit Cash 4,000 debit Investment 4,000 credit Ending Bal Investment (400,000 +60,000-4,000)=456,000 Rev. from Investment 60,000

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