HWI6:
Accounting for Income Taxes
Company accounting policies:
1. Mr.Speakers
rounds all transactions to the nearest dollar.
2. All
depreciation and intangible asset amortization is taken as one full year in the
initial year of service for GAAP financial accounting purposes.
3. FIFO
inventory method.

1)
On
January 2nd, 2017,
Mr.Speakers paid its outstanding dividends payable. Record the journal
entry.
2) On
March 1st, 2017, Mr. Speakers paid its remaining operating lease
payments for 2017 in advance (remember, there are two operating leases, prepare
one journal entry for the prepayment
of both leases).
3) On
March 1, 2017, Mr.Speakers retired the bonds issued 3/1/2016 for 91.5. Prepare
all necessary journal entries.
4) Recognize
lease expense for the year as of 12/31/2017 (see #2 above).
5) On
4/1, 4/30, 7/1, 7/31, 10/1, and 10/31, Mr.Speakers made the required interest
payments on their remaining bonds payable. Make the required journal entries.
Additionally, make the necessary 12/31/17 entry for bonds.
6) On
4/15/2017, Mr.Speakers received the remaining $250 from the customer who had
made a deposit on a pair of MRSP2 headphones.
7) On
4/30/2017, Mr.Speakers paid off its outstanding accounts payable.
8) Between
5/1/2017 and 12/31/2017 produced 200 MRSP1s, 400 MRSP2s, 200 Soft Cases, 275
Hard Cases, 575 Comfort Bands, and 195 Custom Cables, all at standard cost.
Make one summary journal entry for the transaction 12/31/2017. 80% of the
production costs were on account, the other 20% were paid in cash.
9) Between
5/1/2017 and 12/31/2017, Mr.Speakers sold and delivered 60% of the inventory
produced in #8 to consumers for standard retail prices, for cash. Prepare one
journal entry dated 12/31/2017.
10) Between
5/1/2017 and 12/31/2017, Mr.Speakers sold and delivered the other 40% of the
inventory produced in #8 to audio dealers for 90% of standard retail prices.
Half of the sales were paid in cash, the other half were on account. Prepare
one journal entry dated 12/31/2017.
11) On
Friday, 3/3/2017, Mr.Speakers paid all five owners their salary for the week.
12) Saturday,
3/4/2017, during a meeting of the shareholders, the owners of Mr.Speakers voted
to double their salaries to $1,000 per person per week. There were 43 weeks
remaining in the year at that date. Record the payment of salaries for the rest
of the year using one summary journal entry on the final pay day of the year.
Remember to accrue salaries through the end of the year if necessary.
13) At
the end of the year, Mr.Speakers estimates that 2% of accounts receivable will
be uncollectible. No accounts were written off during the year. The direct
write-off method is the only acceptable method for income taxes.
a.
Prepare the journal entry to record the
allowance for doubtful accounts as of 12/31/2017.
b.
Is this a temporary or permanent book
tax difference?
c.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?
14) At
12/31/2017, Mr.Speakers needs to record $36,017 of depreciation expense ($8,000
for general equipment, $1,350 for the SR1, $10,000 for the first building, and
$16,667 for the leased retail space). However, depreciation expense for tax
purposes is $39,213.
a.
Prepare the journal entry to record
depreciation as of 12/31/2017.
b.
Is this a temporary or permanent book
tax difference?
c.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?
15) Warranty
expenses are only tax deductible when they are actually incurred (when a customer
actually returns an item to be repaired/replaced). None of Mr.Speakers
headphones were returned under warranty during the year.
a.
Is this a temporary or permanent book
tax difference?
b.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?
16) Mr.Speakers
COGS for tax purposes was $365,000 for 2017. For book purposes, COGS was
$344,150. This difference will reverse in the following year.
a.
Is this a temporary or permanent book
tax difference?
b.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?
17) Finally,
on December 1, 2017, Mr.Speakers paid $12,000 for
officers life insurance. This insurance premium was for six months of
coverage. The cost of officers life insurance is never tax deductible.
a.
Prepare ALL the journal entries for this
transaction through 12/31/2017.
b.
Is this a temporary or permanent book
tax difference?
c.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?
18) Remember
from your prior homework that Mr.Speakers recorded a $25,000 contingent liability.
This is not deductible for tax purposes until it is actually paid. The
contingent liability is a current liability.
a.
Is this a temporary or permanent book
tax difference?
b.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?
19) Assume
that Mr.Speakers has a 40% income tax rate for 2017. The beginning balance in
all DTA and DTL accounts is 0. ASSUME pretax financial income is $25,000. Prepare
the journal entry to record income tax expense.HWI6:
Accounting for Income TaxesCompany accounting policies:1. Mr.Speakers
rounds all transactions to the nearest dollar.2. All
depreciation and intangible asset amortization is taken as one full year in the
initial year of service for GAAP financial accounting purposes.3. FIFO
inventory method.1)
On
January 2nd, 2017,
Mr.Speakers paid its outstanding dividends payable. Record the journal
entry.2) On
March 1st, 2017, Mr. Speakers paid its remaining operating lease
payments for 2017 in advance (remember, there are two operating leases, prepare
one journal entry for the prepayment
of both leases).3) On
March 1, 2017, Mr.Speakers retired the bonds issued 3/1/2016 for 91.5. Prepare
all necessary journal entries.4) Recognize
lease expense for the year as of 12/31/2017 (see #2 above).5) On
4/1, 4/30, 7/1, 7/31, 10/1, and 10/31, Mr.Speakers made the required interest
payments on their remaining bonds payable. Make the required journal entries.
Additionally, make the necessary 12/31/17 entry for bonds.6) On
4/15/2017, Mr.Speakers received the remaining $250 from the customer who had
made a deposit on a pair of MRSP2 headphones.7) On
4/30/2017, Mr.Speakers paid off its outstanding accounts payable.8) Between
5/1/2017 and 12/31/2017 produced 200 MRSP1s, 400 MRSP2s, 200 Soft Cases, 275
Hard Cases, 575 Comfort Bands, and 195 Custom Cables, all at standard cost.
Make one summary journal entry for the transaction 12/31/2017. 80% of the
production costs were on account, the other 20% were paid in cash.9) Between
5/1/2017 and 12/31/2017, Mr.Speakers sold and delivered 60% of the inventory
produced in #8 to consumers for standard retail prices, for cash. Prepare one
journal entry dated 12/31/2017.10) Between
5/1/2017 and 12/31/2017, Mr.Speakers sold and delivered the other 40% of the
inventory produced in #8 to audio dealers for 90% of standard retail prices.
Half of the sales were paid in cash, the other half were on account. Prepare
one journal entry dated 12/31/2017.11) On
Friday, 3/3/2017, Mr.Speakers paid all five owners their salary for the week.12) Saturday,
3/4/2017, during a meeting of the shareholders, the owners of Mr.Speakers voted
to double their salaries to $1,000 per person per week. There were 43 weeks
remaining in the year at that date. Record the payment of salaries for the rest
of the year using one summary journal entry on the final pay day of the year.
Remember to accrue salaries through the end of the year if necessary.13) At
the end of the year, Mr.Speakers estimates that 2% of accounts receivable will
be uncollectible. No accounts were written off during the year. The direct
write-off method is the only acceptable method for income taxes.a.
Prepare the journal entry to record the
allowance for doubtful accounts as of 12/31/2017.b.
Is this a temporary or permanent book
tax difference?c.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?14) At
12/31/2017, Mr.Speakers needs to record $36,017 of depreciation expense ($8,000
for general equipment, $1,350 for the SR1, $10,000 for the first building, and
$16,667 for the leased retail space). However, depreciation expense for tax
purposes is $39,213.a.
Prepare the journal entry to record
depreciation as of 12/31/2017.b.
Is this a temporary or permanent book
tax difference?c.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?15) Warranty
expenses are only tax deductible when they are actually incurred (when a customer
actually returns an item to be repaired/replaced). None of Mr.Speakers
headphones were returned under warranty during the year.a.
Is this a temporary or permanent book
tax difference?b.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?16) Mr.Speakers
COGS for tax purposes was $365,000 for 2017. For book purposes, COGS was
$344,150. This difference will reverse in the following year.a.
Is this a temporary or permanent book
tax difference?b.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?17) Finally,
on December 1, 2017, Mr.Speakers paid $12,000 for
officers life insurance. This insurance premium was for six months of
coverage. The cost of officers life insurance is never tax deductible.a.
Prepare ALL the journal entries for this
transaction through 12/31/2017.b.
Is this a temporary or permanent book
tax difference?c.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?18) Remember
from your prior homework that Mr.Speakers recorded a $25,000 contingent liability.
This is not deductible for tax purposes until it is actually paid. The
contingent liability is a current liability.a.
Is this a temporary or permanent book
tax difference?b.
If it is temporary, does it create a DTL
or DTA? Current or Non-Current?19) Assume
that Mr.Speakers has a 40% income tax rate for 2017. The beginning balance in
all DTA and DTL accounts is 0. ASSUME pretax financial income is $25,000. Prepare
the journal entry to record income tax expense.