PROBLEMS 5-1 a. Nontaxable
b. Nondeductible c. Nondeductible
d. Temporary difference – Future taxable amount e. Temporary difference – Future taxable amount f. Temporary difference – Future deductible amount g. Temporary difference – Future deductible amount 5-2
Pretax financial income P11,000,00
0 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 2,551,500
Income Tax Payable 2,551,500
35% x 7,290,000
Income Tax Expense – Deferred 875,000
Deferred Tax Liability 875,000
35% x 2,500,000
Deferred Tax Asset 402,500
Income Tax Expense – Deferred 402,500
35% x 1,150,000
or one compound entry may be made as follows:
Income Tax Expense – Current 2,551,500 Income Tax Expense – Deferred 472,500
Deferred Tax Asset 402,500
Income Tax Payable 2,551,500
Deferred Tax Liability 875,000
5-3 (Luzon Corporation)
(a) Pretax financial income P3,000,000
Future taxable amount (1,800,000)
Taxable income P1,200,000
Income tax payable: 35% x 1,200,000 P420,000
Income Tax Expense – Deferred 630,000
Income Tax Payable 420,000
Deferred Tax Liability 630,000
35% x 1,200,000 = 420,000 35% x 1,800,000 = 630,000
5-4 (Visayas Corporation)
(a) Pre tax financial income P2,000,000
Future deductible amount 1,550,000
Taxable income P3,550,000
Income tax payable: 35% x 3,550,000 P1,242,500
(b) Income Tax Expense-Current 1,242,500
Deferred Tax Asset 542,500
Income Tax Payable 1,242,500
Income Tax Benefit-Deferred 542,500
5-5 (Mindanao Corporation)
Income Tax Expense – Current 1,820,000
Deferred Tax Asset 700,000
Deferred Tax Liability 209,000
Income Tax Expense – Deferred (Benefit) 491,000
Income Tax Payable 1,820,000
35% x 5,200,000 = 1,820,000 35% x 2,000,000 = 700,000
(35% x 500,000) + (34% x 100,000) = 209,000 5-6 (Samar, Inc.)
Income Tax Expense – Current (35% x 2,000,000) P 700,000 Income Tax Expense – Deferred (185,500 – 210,000)
(24,500)
Income Tax Expense – Total P
675,500
Income Tax Payable (see above) P
700,000
Deferred Tax Asset: 35% x (360,000 + 240,000) P 210,000
Deferred Tax Liability: 35% x 530,000 P 185,500
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
2008 140,000 x 34% P 47,600
2009 320,000 x 33% 105,600
2010 240,000 x 32% 76,800
Total P230,000
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 P1,760,000
Tax rate x 35 %
Income tax payable P
616,000
Deferred tax liability (see above) P
230,000
(b) Income Tax Expense – Current 616,000
Income Tax Payable 616,000
Income Tax Expense – Deferred 230,000
Deferred Tax Liability 230,000 (c) Income from continuing operations before income tax
P2,200,000
Income tax expense:
Current P616,000
Deferred 230,000 846,000
Net income P1,354,000
5-9 (Daniel Company) (a)
Straight Line SYD Difference
2007 500,000 800,000 (300,000)
2008 500,000 600,000 (100,000)
2009 500,000 400,000 100,000
2010 500,000 200,000 300,000
Carrying Amount Tax Base Difference
12/31/2007 1,500,000 1,200,000 300,000 12/31/2008 1,000,000 600,000 400,000 12/31/2009 500,000 200,000 (300,000) 12/31/2010 0 0 0 2007 2008 2009 2010 Taxable income 800,000 890,000 1,200,000 1,500,000
Future 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 (Asset) at the end of each year is as follows:
105,000
2008 400,000 x 35% 140,000
2009 300,000 x 35% ( 105,00
0)
2010 0 0
(c) Journal entries to record current income tax:
2007 2008
Income Tax Expense-Current 280,000 311,500 Income Tax Payable 280,000 311,500
(35% x 800,000) (35% x 890,000)
2009 2010
Income Tax Expense-Current 420,000 525,000
Income Tax Payable 420,000
525,000
(35% x 1,200,000) (35% x 1,500,000)
Journal entries to record deferred income tax: December 31, 2007:
Income Tax Expense-Deferred 105,000
Deferred Tax Liability 105,000
December 31, 2008:
Income Tax Expense – Deferred 35,000
Deferred Tax Liability
35,000
December 31, 2009:
Deferred Tax Liability 35,000
Income Tax Expense-Deferred (Benefit) 35,000
December 31, 2010:
Deferred Tax Liability 105,000 Income Tax Expense-Deferred (Benefit)
105,000 (d)
2007 2008 2009 2010
Income tax expense:
Current P
280,000 311,500P 420,000P 525,000P Deferred (Benefit) 105,00
0 35,000 ( 35,000) (105,000) Total income tax
expense 385,000P 346,500P 385,000P 420,000P (e)
2007 2008 2009 2010
income tax 0 0 0 Less income tax
expense (see above) 385,00 0 346,50 0 385,00 0 420,00 0 Net income P 715,000 643,500P 715,000P 780,000P 5-10 (Jude Company)
(a) Future taxable amount
Carrying amount of inventories > Tax Base P 100,000
Carrying amount of building & equipment > Tax Base 1,800,000
P 1,900,000
Future Deductible Amount
Carrying amount of accounts receivable < Tax Base P200,000
Carrying amount of warranty > Tax Base 800,000
Carrying amount of unearned rent > Tax Base 500,000
P 1,500,000
(b) Income Tax Payable P1,750,000
Deferred Tax Assets (1,500,000 x 35%) P 525,000
Deferred Tax Liability (1,900,000 x 35%) P 665,000
(c) Income Tax Expense-Current 1,750,000
Income Tax Payable 1,750,000
Deferred Tax Liability 735,000
Income Tax Benefit-Deferred 735,000
1,400,000 – 665,000
No entry is necessary to adjust deferred tax asset, as deferred tax asset beginning is P525,000 which is equal to the required balance of deferred tax asset.
