Reference no: EM131700727
Problem 1: Costigan Company's income statement for the year ended December 31, 2016, shows pretax income of $300,000. The following items are treated differently on the tax return and on the income statement.
Account Tax Return Income Statement
Warranty expense $120,000 $180,000
Depreciation expense 840,000 660,000
Tax-exempt interest revenue 0 24,000
Costigan's tax rate for 2016 is 30 percent, and the enacted tax rate for 2017 and 2018 is 40 percent. The remaining $60,000 of warranty costs will be incurred in 2017. Depreciation recorded on the income statement will exceed tax return depreciation by $70,000 in 2017.
Required:
1. How much deferred tax liability Costigan have at December 31, 2016?
2. How much deferred tax asset does Costigan have at December 31, 2016?
3. What is Costigan's income tax payable at December 31, 2016?
4. What is Costigan's income tax expense for 2016?
5. What is Costigan's net income for 2016?
Problem 2: The pretax financial income (or loss) figures for Pritchett Company are as follows.
2011 $90,000
2012 65,000
2013 40,000
2014 (230,000)
2015 70,000
2016 (50,000)
2017 80,000
2018 150,000
Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 40% tax rate for 2011 and 2012 and a 35% tax rate for the remaining years.
Required: Prepare the journal entries for the years 2012 to 2018 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Pritchett Company uses the carryback provision. All income and losses relate to normal operations. Assume that it is more likely than not that the benefits of the loss carryforward will be realized, thus no valuation account is needed.