E19-1 (One Temporary Difference, Future Taxable Amounts, One Rate, No Beginning

Deferred
Taxes) South Carolina Corporation has one temporary difference at the end of 2014 that will reverse
and
cause taxable amounts of $55,000 in 2015, $60,000 in 2016, and $65,000 in 2017. South Carolinas
pretax
financial income for 2014 is $300,000, and the tax rate is 30% for all years. There are no deferred
taxes at the
beginning of 2014.
Instructions
(a) Compute taxable income and income taxes payable for 2014.
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2014.
(c) Prepare the income tax expense section of the income statement for 2014, beginning with the line
Income before income taxes.
E19-2 (Two Differences, No Beginning Deferred Taxes, Tracked through 2 Years) The following
information
is available for Wenger Corporation for 2013 (its first year of operations).
1. Excess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse
equally over the years 20142017.
2. Deferral, for book purposes, of $20,000 of rent received in advance. The rent will be recognized in
2014.
3. Pretax financial income, $300,000.
4. Tax rate for all years, 40%.
Instructions
(a) Compute taxable income for 2013.
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2013.
(c) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2014, assuming taxable income of $325,000.
E19-3 (One Temporary Difference, Future Taxable Amounts, One Rate, Beginning Deferred
Taxes)
Bandung Corporation began 2014 with a $92,000 balance in the Deferred Tax Liability account. At the
end
of 2014, the related cumulative temporary difference amounts to $350,000, and it will reverse evenly
over
the next 2 years. Pretax accounting income for 2014 is $525,000, the tax rate for all years is 40%, and
taxable
income for 2014 is $405,000.
Instructions
(a) Compute income taxes payable for 2014.
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2014.
(c) Prepare the income tax expense section of the income statement for 2014 beginning with the line
Income before income taxes.
E19-4 (Three Differences, Compute Taxable Income, Entry for Taxes) Zurich Company reports
pretax
financial income of $70,000 for 2014. The following items cause taxable income to be different than
pretax
financial income.
1. Depreciation on the tax return is greater than depreciation on the income statement by $16,000.
2. Rent collected on the tax return is greater than rent recognized on the income statement by
$22,000.
3. Fines for pollution appear as an expense of $11,000 on the income statement.
Zurichs tax rate is 30% for all years, and the company expects to report taxable income in all future
years.
There are no deferred taxes at the beginning of 2014.
Instructions
(a) Compute taxable income and income taxes payable for 2014.
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2014.

(c) Prepare the income tax expense section of the income statement for 2014, beginning with the line
Income before income taxes.
(d) Compute the effective income tax rate for 2014.
E19-5 (Two Temporary Differences, One Rate, Beginning Deferred Taxes) The following facts
relate to
Krung Thep Corporation.
1. Deferred tax liability, January 1, 2014, $40,000.
2. Deferred tax asset, January 1, 2014, $0.
3. Taxable income for 2014, $95,000.
4. Pretax financial income for 2014, $200,000.
5. Cumulative temporary difference at December 31, 2014, giving rise to future taxable amounts,
$240,000.
6. Cumulative temporary difference at December 31, 2014, giving rise to future deductible amounts,
$35,000.
7. Tax rate for all years, 40%.
8. The company is expected to operate profitably in the future.
Instructions
(a) Compute income taxes payable for 2014.
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes
payable for 2014.
(c) Prepare the income tax expense section of the income statement for 2014, beginning with the line
Income before income taxes.

E19-6 (Identify Temporary or Permanent Differences) Listed below are items that are commonly
accounted
for differently for financial reporting purposes than they are for tax purposes.
Instructions
For each item below, indicate whether it involves:
(1) A temporary difference that will result in future deductible amounts and, therefore, will usually
give rise to a deferred income tax asset.
(2) A temporary difference that will result in future taxable amounts and, therefore, will usually give
rise to a deferred income tax liability.
(3) A permanent difference.
Use the appropriate number to indicate your answer for each.
(a) ______ The MACRS depreciation system is used for tax purposes, and the straight-line depreciation
method is used for financial reporting purposes for some plant assets.
(b) ______ A landlord collects some rents in advance. Rents received are taxable in the period when
they are received.
(c) ______ Expenses are incurred in obtaining tax-exempt income.
(d) ______ Costs of guarantees and warranties are estimated and accrued for financial reporting
purposes.
(e) ______ Installment sales of investments are accounted for by the accrual method for financial
reporting purposes and the installment method for tax purposes.
(f) ______ For some assets, straight-line depreciation is used for both financial reporting purposes and
tax purposes but the assets lives are shorter for tax purposes.
(g) ______ Interest is received on an investment in tax-exempt municipal obligations.
(h) ______ Proceeds are received from a life insurance company because of the death of a key officer.
(The company carries a policy on key officers.)
(i) ______ The tax return reports a deduction for 80% of the dividends received from U.S. corporations.
The cost method is used in accounting for the related investments for financial reporting purposes.
(j) ______ Estimated losses on pending lawsuits and claims are accrued for books. These losses are tax
deductible in the period(s) when the related liabilities are settled.
(k) ______ Expenses on stock options are accrued for financial reporting purposes.

E19-7 (Terminology, Relationships, Computations, Entries)

Instructions
Complete the following statements by filling in the blanks.

(a) In a period in which a taxable temporary difference reverses, the reversal will cause taxable
income
to be _______ (less than, greater than) pretax financial income.
(b) If a $76,000 balance in Deferred Tax Asset was computed by use of a 40% rate, the underlying
cumulative
temporary difference amounts to $_______.
(c) Deferred taxes ________ (are, are not) recorded to account for permanent differences.
(d) If a taxable temporary difference originates in 2014, it will cause taxable income for 2014 to be
________ (less than, greater than) pretax financial income for 2014.
(e) If total tax expense is $50,000 and deferred tax expense is $65,000, then the current portion of the
expense computation is referred to as current tax _______ (expense, benefit) of $_______.
4(f) If a corporations tax return shows taxable income of $100,000 for Year 2 and a tax rate of 40%,
how
much will appear on the December 31, Year 2, balance sheet for Income taxes payable if the
company has made estimated tax payments of $36,500 for Year 2? $________.
(g) An increase in the Deferred Tax Liability account on the balance sheet is recorded by a _______
(debit, credit) to the Income Tax Expense account.
(h) An income statement that reports current tax expense of $82,000 and deferred tax benefit of
$23,000
will report total income tax expense of $________.
(i) A valuation account is needed whenever it is judged to be _______ that a portion of a deferred tax
asset _______ (will be, will not be) realized.
(j) If the tax return shows total taxes due for the period of $75,000 but the income statement shows
total
income tax expense of $55,000, the difference of $20,000 is referred to as deferred tax _______
(expense, benefit).