Exercise 16-3 Taxable income given; calculate deferred tax liability
Ayres Services acquired an asset for $80 million in 2016. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2016, 2017, 2018, and 2019 are as follows:
Exercise 16-5 Temporary difference; future deductible amounts; taxable income given
Lance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when the cost is incurred. At December 31, 2016, Lance has a warranty liability of $1 million and taxable income of $75 million. At December 31, 2015, Lance reported a deferred tax asset of $435,000 related to this difference in reporting warranties, its only temporary difference. The enacted tax rate is 40% each year.
Exercise 16-10 Deferred tax asset; taxable income given; valuation allowance
At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $30 million attributable to a temporary book–tax difference of $75 million in a liability for estimated expenses. At the end of 2016, the temporary difference is $70 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2016 is $180 million and the tax rate is 40%.
Exercise 16-22 Net operating loss carryback and carryforward
Wynn Sheet Metal reported a net operating loss of $160,000 for financial reporting and tax purposes in 2016. The enacted tax rate is 40%. Taxable income, tax rates, and income taxes paid in Wynn’s first four years of operation were as follows: