CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS

Question 1599. CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS Question PR #1 Kooler Inc. is a domestic corporation. It owns 100% of Texas Inc. a domestic corporation 100% of Paris a foreign corporation and 45% of Iowa Inc. a domestic corporation. a. Which entities? incomes are included in Kooler?s combined GAAP financial statements? b. How would your answer change if Kooler instead owned 15% of Iowa? 1600. CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS Question PR #2 Bunker Inc. is a domestic corporation. It owns 100% of Texas Inc. a domestic corporation 100% of Paris a foreign corporation and 35% of Iowa Inc. a domestic corporation. a. Which entities? incomes are included in Bunker?s Federal consolidated income tax return? b. How would your answer change if Bunker instead owned 15% of Iowa? 1601. CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS Question PR #3 Rochelle Inc. reported the following results for the current year. Book income (before tax) $500000 Tax depreciation in excess of book 25000 Non-tax-deductible warranty expense 17500 Municipal bond interest income 20000 Determine Rochelle?s taxable income for the current year. Identify any temporary or permanent book-tax differences. 1602. CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS Question PR #4 PaintCo Inc. a domestic corporation owns 100% of BrushCo Ltd. an Irish corporation. Assume that the U.S. corporate tax rate is 35% and the Irish rate is 10%. PaintCo is permanently reinvesting BrushCo?s earnings outside the United States under ASC 740-30 (APB 23). The corporations? book income permanent and temporary book-tax differences and current tax expense are as follows. Determine PaintCo?s total tax expense reported on its financial statements its current tax expense (benefit) and its deferred tax expense (benefit). PaintCo BrushCo Book income before tax $600000 $400000 Permanent differences Meals & entertainment expense 40000 ?0? Municipal bond interest income (100000) ?0? Temporary differences Tax > book depreciation (100000) ?0? Book > tax bad debt expense 20000 ?0? 1603. CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS Question PR #5 PaintCo Inc. a domestic corporation owns 100% of BrushCo Ltd. an Irish corporation. Assume that the U.S. corporate tax rate is 35% and the Irish rate is 10%. PaintCo is permanently reinvesting BrushCo?s earnings outside the United States under ASC 740-30 (APB 23). The corporations? book income permanent and temporary book-tax differences and current tax expense are as follows. Provide the income tax footnote rate reconciliation for PaintCo using both dollar amounts and percentages. PaintCo BrushCo Book income before tax $600000 $400000 Permanent differences Meals & entertainment expense 40000 ?0? Municipal bond interest income (100000) ?0? Temporary differences Tax > book depreciation (100000) ?0? Book > tax bad debt expense 20000 ?0? 1604. CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS Question PR #6 Gator Inc. is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 34% corporate tax rate and no valuation allowance. Tax Debit/(Credit) Book Debit/(Credit) Assets Cash $ 300 $ 300 Accounts Receivable 5000 5000 Buildings 300000 300000 Acc. Depreciation (150000) (80000) Furniture & Fixtures 40000 40000 Acc. Depreciation (21000) (15000) Total Assets $174300 $250300 Liabilities Accrued Litigation Expense $ ?0? ($ 27000) Note Payable (116000) (116000) Total Liabilities ($116000) ($143000) Stockholder Equity Paid in Capital ($ 1000) ($ 1000) Retained Earnings (57300) (106300) Total Liabilities and Stockholders Equity ($174300) ($250300) Gator Inc.?s gross deferred tax assets and liabilities at the beginning of Gator?s year are listed below. Beginning of Year Accrued Litigation Expense $21000 Subtotal $21000 Applicable Tax Rate ? 34% Gross Deferred Tax Asset $ 7140 Building ? Acc. Depreciation ($61000) Furniture & fixtures ? Acc. Depreciation (3200) Subtotal ($64200) Applicable tax rate ? 34% Gross deferred tax liability ($21828) Gator Inc.?s book income before tax is $6300. Gator records two permanent book-tax differences. It earned $250 in tax exempt municipal bond interest and $460 in nondeductible meals and entertainment expense. Determine the change in Gator?s deferred tax assets for the current year. 1605. CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS Question PR #7 Gator Inc. is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 34% corporate tax rate and no valuation allowance. Tax Debit/(Credit) Book Debit/(Credit) Assets Cash $ 300 $ 300 Accounts Receivable 5000 5000 Buildings 300000 300000 Acc. Depreciation (150000) (80000) Furniture & Fixtures 40000 40000 Acc. Depreciation (21000) (15000) Total Assets $174300 $250300 Liabilities Accrued Litigation Expense $ ?0? ($ 27000) Note Payable (116000) (116000) Total Liabilities ($116000) ($143000) Stockholder Equity Paid in Capital ($ 1000) ($ 1000) Retained Earnings (57300) (106300) Total Liabilities and Stockholders Equity ($174300) ($250300) Gator Inc.?s gross deferred tax assets and liabilities at the beginning of Gator?s year are listed below. Beginning of Year Accrued Litigation Expense $21000 Subtotal $21000 Applicable Tax Rate ? 34% Gross Deferred Tax Asset $ 7140 Building ? Acc. Depreciation ($61000) Furniture & fixtures ? Acc. Depreciation (3200) Subtotal ($64200) Applicable tax rate ? 34% Gross deferred tax liability ($21828) Gator Inc.?s book income before tax is $6300. Gator records two permanent book-tax differences. It earned $250 in tax exempt municipal bond interest and $460 in nondeductible meals and entertainment expense. Determine the net deferred tax asset or net deferred tax liability at year end. 1606. CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS Question PR #8 Gator Inc. is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 34% corporate tax rate and no valuation allowance. Tax Debit/(Credit) Book Debit/(Credit) Assets Cash $ 300 $ 300 Accounts Receivable 5000 5000 Buildings 300000 300000 Acc. Depreciation (150000) (80000) Furniture & Fixtures 40000 40000 Acc. Depreciation (21000) (15000) Total Assets $174300 $250300 Liabilities Accrued Litigation Expense $ ?0? ($ 27000) Note Payable (116000) (116000) Total Liabilities ($116000) ($143000) Stockholder Equity Paid in Capital ($ 1000) ($ 1000) Retained Earnings (57300) (106300) Total Liabilities and Stockholders Equity ($174300) ($250300) Gator Inc.?s gross deferred tax assets and liabilities at the beginning of Gator?s year are listed below. Beginning of Year Accrued Litigation Expense $21000 Subtotal $21000 Applicable Tax Rate ? 34% Gross Deferred Tax Asset $ 7140 Building ? Acc. Depreciation ($61000) Furniture & fixtures ? Acc. Depreciation (3200) Subtotal ($64200) Applicable tax rate ? 34% Gross deferred tax liability ($21828) Gator Inc.?s book income before tax is $6300. Gator records two permanent book-tax differences. It earned $250 in tax exempt municipal bond interest and $460 in nondeductible meals and entertainment expense. Determine the change in Gator?s deferred tax liabilities for the current year. 1607. CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS Question PR #9 Gator Inc. is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 34% corporate tax rate and no valuation allowance. Tax Debit/(Credit) Book Debit/(Credit) Assets Cash $ 300 $ 300 Accounts Receivable 5000 5000 Buildings 300000 300000 Acc. Depreciation (150000) (80000) Furniture & Fixtures 40000 40000 Acc. Depreciation (21000) (15000) Total Assets $174300 $250300 Liabilities Accrued Litigation Expense $ ?0? ($ 27000) Note Payable (116000) (116000) Total Liabilities ($116000) ($143000) Stockholder Equity Paid in Capital ($ 1000) ($ 1000) Retained Earnings (57300) (106300) Total Liabilities and Stockholders Equity ($174300) ($250300) Gator Inc.?s gross deferred tax assets and liabilities at the beginning of Gator?s year are listed below. Beginning of Year Accrued Litigation Expense $21000 Subtotal $21000 Applicable Tax Rate ? 34% Gross Deferred Tax Asset $ 7140 Building ? Acc. Depreciation ($61000) Furniture & fixtures ? Acc. Depreciation (3200) Subtotal ($64200) Applicable tax rate ? 34% Gross deferred tax liability ($21828) Gator Inc.?s book income before tax is $6300. Gator records two permanent book-tax differences. It earned $250 in tax exempt municipal bond interest and $460 in nondeductible meals and entertainment expense. Determine Gator?s change in net deferred tax asset or net deferred tax liability for the current year and provide the journal entry to record this amount. 1608. CHAPTER 14?TAXES ON THE FINANCIAL STATEMENTS Question PR #10 Gator Inc. is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 34% corporate tax rate and no valuation allowance. Tax Debit/(Credit) Book Debit/(Credit) Assets Cash $ 300 $ 300 Accounts Receivable 5000 5000 Buildings 300000 300000 Acc. Depreciation (150000) (80000) Furniture & Fixtures 40000 40000 Acc. Depreciation (21000) (15000) Total Assets $174300 $250300 Liabilities Accrued Litigation Expense $ ?0? ($ 27000) Note Payable (116000) (116000) Total Liabilities ($116000) ($143000) Stockholder Equity Paid in Capital ($ 1000) ($ 1000) Retained Earnings (57300) (106300) Total Liabilities and Stockholders Equity ($174300) ($250300) Gator Inc.?s gross deferred tax assets and liabilities at the beginning of Gator?s year are listed below. Beginning of Year Accrued Litigation Expense $21000 Subtotal $21000 Applicable Tax Rate ? 34% Gross Deferred Tax Asset $ 7140 Building ? Acc. Depreciation ($61000) Furniture & fixtures ? Acc. Depreciation (3200) Subtotal ($64200) Applicable tax rate ? 34% Gross deferred tax liability ($21828) Gator Inc.?s book income before tax is $6300. Gator records two permanent book-tax differences. It earned $250 in tax exempt municipal bond interest and $460 in nondeductible meals and entertainment expense. Calculate Gator?s current tax expense.

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