Questions 2-3: Lyons Company
has prepaid insurance expense in
2018. Lyons Company deducts
insurance expense of $210,000
for tax purposes in 2018, but the
expense is not yet recognized for
accounting purposes. In 2019, 2020,
and 2021, no insurance expense will
be deducted for tax purposes, but
$70,000 of insurance expense
will be reported for accounting
purposes in each of these years.
Lyons
Company has a tax rate of 40% and
income taxes payable of $180,000
at the end of 2018. There were no
deferred taxes at the beginning of
2018.
2. What is the amount of the
deferred tax asset or liability at the
end of 2018?
a. deferred tax liability: $84,000
b. deferred tax liability: $72,000
c. deferred tax asset: $84,000
d. deferred tax asset: $72,000
e. None of the above.
a $210,000 × .40 = $84,000
2018 J.E.
Income tax expense $180,000 +
84,000 = $264,000
Deferred tax liability $84,000
Income tax payable $180,000
3. Assuming that income taxes
payable for 2019 is $240,000, the
income tax expense for 2019 would
be
what amount?
a. $324,000
b. $268,000
c. $240,000
d. $212,000
e. None of the above.
d $240,000 – ($70,000 × .40) =
$212,000.
2019 J.E.
Income tax expense $240,000 -
28,000 = $212,000
Deferred tax liability ($70,000 × .
40)= $28,000
Income tax payable
$240,000
Questions 2-3: Lyons Company
has prepaid insurance expense in
2018. Lyons Company deducts
insurance expense of $210,000
for tax purposes in 2018, but the
expense is not yet recognized for
accounting purposes. In 2019, 2020,
and 2021, no insurance expense will
be deducted for tax purposes, but
$70,000 of insurance expense
will be reported for accounting
purposes in each of these years.
Lyons
Company has a tax rate of 40% and
income taxes payable of $180,000
at the end of 2018. There were no
deferred taxes at the beginning of
2018.
2. What is the amount of the
deferred tax asset or liability at the
end of 2018?
a. deferred tax liability: $84,000
b. deferred tax liability: $72,000
c. deferred tax asset: $84,000
d. deferred tax asset: $72,000
e. None of the above.
a $210,000 × .40 = $84,000
2018 J.E.
Income tax expense $180,000 +
84,000 = $264,000
Deferred tax liability $84,000
Income tax payable $180,000
3. Assuming that income taxes
payable for 2019 is $240,000, the
income tax expense for 2019 would
be
what amount?
a. $324,000
b. $268,000
c. $240,000
d. $212,000
e. None of the above.
d $240,000 – ($70,000 × .40) =
$212,000.
2019 J.E.
Income tax expense $240,000 -
28,000 = $212,000
Deferred tax liability ($70,000 × .
40)= $28,000
Income tax payable
$240,000
Questions 2-3: Lyons Company has prepaid insurance expense in 2018. Lyons Company deducts
insurance expense of $210,000 for tax purposes in 2018, but the expense is not yet recognized
for accounting purposes. In 2019, 2020, and 2021, no insurance expense will be deducted for tax
purposes, but $70,000 of insurance expense will be reported for accounting purposes in each of
these years. Lyons Company has a tax rate of 40% and income taxes payable of $180,000 at the end of
2018. There were no deferred taxes at the beginning of 2018.
2. What is the amount of the deferred tax asset or liability at the end of 2018?
a. deferred tax liability: $84,000
b. deferred tax liability: $72,000
c. deferred tax asset: $84,000
d. deferred tax asset: $7
Answer: A
$210,000 × .40 = $84,000
2018 J.E.
Income tax expense $180,000 + 84,000 = $264,000
Deferred tax liability $84,000
Income tax payable $180,000
3. Assuming that income taxes payable for 2019 is $240,000, the income tax expense for 2019 would be
what amount?
a. $324,000
b. $268,000
c. $240,000
d. $212,000
e. None of the above.
Answer: D
$240,000 – ($70,000 × .40) = $212,000.
2019 J.E. Income tax expense $240,000 - 28,000 = $212,000
Deferred tax liability ($70,000 × .40)= $28,000
Income tax payable $240,000
4. Ferguson Company has the
following cumulative taxable
temporary differences:
12/31/19 12/31/18
$3,600,000 $2,560,000
The tax rate is 40%. Taxable
income for 2019 is $6,400,000.
There are no permanent differences.
Ferguson's total income tax expense
for 2019 is
a. $4,000,000
b. $2,976,000
c. $2,144,000
d. $700,000
4. Ferguson Company has the following cumulative taxable temporary differences:
12/31/19 12/31/18
$3,600,000 $2,560,000
The tax rate is 40%. Taxable income for 2019 is $6,400,000. There are no permanent differences.
Ferguson's total income tax expense for 2019 is
a. $4,000,000 b. $2,976,000 c. $2,144,000 d. $700,000
b
Income tax expense 2,560,000 +
416,000 = 2,976,000
DTL = increase in DLT ($3,600,000
– $2,560,000) * tax rate 0.4 =
416,000
Income tax payable = $6,400,000 *
tax rate 0.4 = 2,560,000
Answer: B
Income tax expense 2,560,000 + 416,000 = 2,976,000
DTL = increase in DLT ($3,600,000 – $2,560,000) * tax rate 0.4 = 416,000
Income tax payable = $6,400,000 * tax rate 0.4 = 2,560,000
5. Hanson Inc. reports the following pretax income (loss) for both financial reporting purposes and tax
purposes.
Year Pretax Income (Loss) Tax Rate
2015 $120,000 38%
2016 90,000 38
2017 (280,000) 38
2018 220,000 38
The carryback provision is used for a net operating loss. At the end of 2017 the benefits of the loss
carryforward are judged more likely than not to be realized in the future.
How much is the tax benefit of loss carryforward in 2017?
a. 26,600 b. 71,400 c. 79,800 d. 84,000 e. None of the above.
ANSWER: A
2017
Income Tax Refund Receivable ............................................................... 79,800
Benefit Due to Loss Carryback ..................................................... 79,800*
* Benefit Due to Loss Carryback = [38% X $(120,000)] + [38% X $(90,000)] = $79,800
Deferred Tax Asset ................................................................................. 26,600
Benefit Due to Loss Carryforward ................................................ 26,600**
**38% X ($280,000 – $120,000 – $90,000) = $26,600
How much is the tax benefit of loss
carryforward in 2017?
a. 26,600
b. 71,400
c. 79,800
d. 84,000
e. None of the above.
A
2017
Income Tax Refund
Receivable .......................................
........................ 79,800
Benefit Due to Loss
Carryback ........................................
............. 79,800*
* Benefit Due to Loss
Carryback = [38% X $(120,000)] +
[38% X $(90,000)] = $79,800
Deferred Tax
Asset ................................................
................................. 26,600
Benefit Due to Loss
Carryforward ...................................
............. 26,600**
**38% X ($280,000 – $120,000 –
$90,000) = $26,600
