Problem 1 - Wallace Company's income statement for the year ended December 31, 2015, shows pretax income of $300,000. The following items are treated differently on the tax return and on the income statement.
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Account
|
Tax Return
|
Income Statement
|
|
Warranty expense
|
$120,000
|
$180,000
|
|
Depreciation expense
|
840,000
|
660,000
|
|
Tax- exempt interest revenue
|
0
|
24,000
|
Wallace's tax rate for 2015 is 30 percent, and the enacted tax rate for 2016 and 2017 is 40 percent. The remaining $60,000 of warranty costs will be incurred in 2016. Depreciation recorded on the income statement will exceed tax return depreciation by $70,000 in 2016.
Required:
1. How much deferred tax liability Wallace have at December 31, 2015?
2. How much deferred tax asset does Wallace have at December 31, 2015?
3. What is Wallace's income tax payable at December 31, 2015?
4. What is Wallace's income tax expense for 2015?
5. What is Wallace's net income for 2015?
Problem 2 - The pretax financial income (or loss) figures for Gruber Company are as follows.
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2011
|
$90,000
|
|
2012
|
65,000
|
|
2013
|
40,000
|
|
2014
|
(230,000)
|
|
2015
|
70,000
|
|
2016
|
(50,000)
|
|
2017
|
80,000
|
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 2014 to 2017 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Gruber 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.