Corning-Howell reported taxable income in 2018 of $280 million. At December 31,

Question

Corning-Howell reported taxable income in 2018 of $280 million. At December 31, 2018, the reported amount of some assets and liabilities in the financial statements differed from their tax bases as indicated below: Carrying Amount Tax Basis Assets Current $16 million 22 million Net accounts receivable Prepaid insurance Prepaid advertising 56 million 9 million Noncurrent Investments at fair value with changes in oCI* Buildings and equipment (net) 5 million 540 million 450 million Liabilities Current Liability-subscriptions received 34 million Long-term Liability-postretirement benefits 670 million Gains and losses taxable when investments are sold The total deferred tax asset and deferred tax liability amounts at January 1, 2018, were $290 million and $50 million, respectively. The enacted tax rate is 40% each year Required 1. Determine the total deferred tax asset and deferred tax liability amounts at December 31, 2018 2. Determine the increase (decrease) in the deferred tax asset and deferred tax liability accounts at December 31, 2018 3. Determine the income tax payable currently for the year ended December 31, 2018 4. Prepare the journal entry to record income taxes for 2018

Explanation / Answer

(1) - Deferred Tax asset and Deferred tax liability

(2) Decrease in deferred Tax asset = ($284 - $290) = $6

Increase in deferred Tax liability = ($64 - $50) = $14

(3) Income Tax Liability = ($280 * 40%) = $112

(4) Journal Entry

Particulars Amount Deferred Tax Asset Allowance for bad debts ($22 - $16)*40% $2.4 Subscription liability ($34*40%) $13.6 Post Retirement Benefit liability ($670*40%) $268 Deferred Tax Asset $284 Deferred Tax Liability Prepaid Insurance ($56*40%) $22.4 Prepaid Advertising ($9*40%) $3.6 Investment Unrealized Gain ($5*40%) $2 Building ($540 - $450)*40% $36 Deferred Tax Liability $64

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