Question 1 - Harvard Company reports pre-tax financial income of $100,000 for 2014. The following items cause taxable income to be different than pre-tax financial income:
Insurance expenses amounting to $20,000 for the year 2014 were owed. These were subsequently paid in January of 2015.
At year-end 12/31/2014, tenants had prepaid Harvard rent of $30,000 for the year 2014.
Fines for pollution appear as an expense of $5,000 on the income statement
Harvard's tax rate is 40% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2014.
Required:
a) Compute taxable income and income taxes payable for 2014.
b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014.
Question 2 - For both GAAP and tax purposes, Raymond Incorporated reported the following pre-tax income (loss) for each of the years:
Year Pre-tax income Tax Rate
2012 $160,000 25%
2013 130,000 25%
2014 (500,000) 30%
2015 70,000 30%
Required: Assuming that the carry back provision is used, prepare all the necessary journal entries for each year 2012-2015 to record income tax expense (benefit) and income tax payable (refundable), and the tax effects of the loss carry back and loss carry forward. Also assume that a valuation allowance would be required at the end of 2015 for 30% of any remaining Deferred Tax Asset resulting from a Net Operating Loss carry forward.