Q1 Final Intacc 2 (BSA 2A)
Name: ______________________________- Date: ______________________
Accounting for Income Tax
1. Empress Company reported a pretax accounting income of P4,000,000 for 2023. The income tax rate is
30%. The following data are provided for the current year:
Rent received in advance 600,000
Income from exempt investment in bonds 500,000
Accelerated Depreciation for income tax purposes 1,000,000
Tax payment during the current year 250,000
Income tax rate 30%
a. Journal entries to record the current tax expense and deferred tax asset/liability.
Income tax expense (3M x 30%) 930,000
Income tax payable 930,000
Deferred tax asset (600,000 x 30%) 180,000
Income tax benefit 180,000
Income tax expense (1m x 30%) 300,000
Deferred tax Liability 300,000
b. What amount of current income tax liability should be reported at year-end?
680,000
Financial income 4,000,000
Rent received in advance 600,000
Tax exempt income ( 500,000)
Tax depreciation in excess of financial depreciation (1,000,000)
Taxable income 3,100,000
Current tax expense (30% x 3,100,000) 930,000
Tax payment during the year ( 250,000)
Current tax liability 680,000
c. Present the income tax expense in the income statement for 2023:
Income before tax 4,000,000
Less tax exempt income (500,000)
Accounting taxable income 3,500,000
Less Income tax expense:
Current tax expense 930,000
Deferred tax expense 300,000
Income tax benefit (180,000) 1.050,000
Income after tax 2,450,000
Benefits
Sandra Corporation received the following report from its actuary at the end of the year:
Jan 1, 2023 12/31/2023
Present value of benefit obligation P5,200,000 P5,920,000
Fair Value of Plan Assets 5,520,000 P5,760,000
Discount rate 12%
Current service cost P700,000
Benefits paid during the year 740,000
Contribution made during the year 500,000
Past Service Cost 30,000
Actual Return on Plan Assets 480,000
Actuarial loss on PBO 106,000
Required:
1. Determine the employee benefit expense for the current year.
Current service cost 700,000
Past service cost 30,000
Interest Expense (5,200K x 12%) 624,000
Interest income (5,520K x 12%) (662,400)
Employee Benefit Expense 691,600
2. Determine the remeasurement at year end.
Actual return on Plan assets 480,000
Interest Income 662,400
Remeasurement Loss 182,400
Actuarial Loss on PBO 106,000
Net remeasurement loss 288,400
3. Prepare journal entry to record the employee benefit expense.
Employee Benefit Expense 691,600
Remeasurement Loss 288,400
Cash 500,000
Accrued/Prepaid benefit Cost 480,000
4. Determine the balance of the prepaid/accrued benefit cost at the year-end
Beginning balance (5,520 – 5,200) = 320 debit less 480. = 160
5. Reconcile the prepaid/accrued benefit cost with the memorandum records.
Answer:
FVPA beg. 5,520
Contribution 500
Actual return 480
Benefits paid (740)
FVPA 12/31 5,760
PBO 1/1/23 5,200
Current service cost 700
Past service cost 30
Interest Cost 624
Actuarial loss 106
Benefits paid (740)
PBO 12/31 5,920
5,760 – 5,920 = 160 credit
2. Aira Company had established a defined benefit pension plan for an employee. Annual
payments under the pension plan are equal to the employee’s highest lifetime salary multiplied by 4%
multiplied by the number of years with the entity.
On December 31, 2023, the employee’s current salary was P500,000 and had worked for 15 years.
The employee is expected to retire in 5 years and the salary increase is expected to average 4% per
year during the 5-year period
The employee is expected to live for 6 years after retiring and shall receive first annual pension
payment one year after retirement. The discount rate is 12%.
Future value of 1 at 4% for 5 periods 1.22
PV of an ordinary annuity of 1 at 12% for 6 years 4.11
PV of 1 at 12% for 5 period .57
Required:
1. What amount should be recognized as future salary of the employee upon retirement?
P500,000 x 1.22 P610,000
2. What amount should be recognized as annual pension payment to be used in computing
projected benefit obligation?
610,000 x 4% x 15 years = 366,000
3. What amount should be reported as PBO on December 31, 2023?
274,500 x 4.11 = 1,504,260 x .57 = 857,428
