At the beginning of 2013, Norris Company had a deferred tax liability of $7,500,
ID: 2459825 • Letter: A
Question
At the beginning of 2013, Norris Company had a deferred tax liability of $7,500, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2012 and 2013, but in 2012 Congress enacted a 40% tax rate for 2014 and future years.
Norris's accounting records show the following pretax items of financial income for 2013: income from continuing operations, $178,500 (revenues of $386,000 and expenses of $207,500); gain on disposal of Division F, $21,200; extraordinary loss, $11,100; loss from operations of discontinued Division F, $12,000; and prior period adjustment, $17,700, due to an error that understated revenue in 2012. All of these items are taxable; however, financial depreciation for 2013 on assets related to continuing operations exceeds tax depreciation by $7,600. Norris had a retained earnings balance of $168,000 on January 1, 2013, and declared and paid cash dividends of $41,000 during 2013.
Explanation / Answer
Workings:
Tax on accounting income 58,290
Difference adjusted ti deferred tax liability 2,280
Adjustment to deferred tax liability:
Balance in deferred tax liability = 7,500 - 2,280 = 5,220
Tax @30% = 5,220
Tax @ 40% = 5,220*40/30 = 6,960
Deferred tax liability to be adjusted by $1,740
3. Statement of Retained Earnings:
Partial Balance sheet:
Income tax payable 60,570
Deferred tax liability -Non current 6,960
Journal entry to record income tax expense for 2013 Income tax expense Dr 58,290 Deferred tax liability Dr 2,280 To Taxes payable 60,570 Journal entry to adjust deferred tax liability to the changed rate Income tax expense Dr 1,740.00 To Deferred tax liability 1,740.00Related Questions
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