1. Prepare the year-end tax entry for each year. Assume that the tax entries are only prepared at the end of the year, i.e., not at the time of the individual transaction. 2. Prepare a schedule reconciling before tax income to taxable income and derive taxes payable. 3. Prepare the schedule of year-end deferred tax assets and liabilities for each year. The schedule should separately list the sources of the firm's ending deferred tax assets and deferred tax liabilities by their source. For example, the deferred tax asset/liability associated with the book/tax difference associated with the lease should be listed as a single source. The total for each schedule should equal the firm's deferred tax asset and deferred tax liability balance at the end of the year. 4. Prepare a schedule that reconciles the tax on earnings before tax at the statutory rate to tax expense. 1. Purchased a municipal bond for its face value of $600,000. The bond has a coupon rate of 6% (payable December 31 of each year), and a five-year maturity. The bond is accounted for as a "held to maturity" debt security. 2. Issued 8,000 restricted share units and 15,000 nonqualified stock options to employees. The shares are currently trading for $12 per share. The option exercise price is set equal to $12, and the fair value of each option is $3. The vesting service period for the restricted share units and stock options is 18 months. 3. The firm purchased 30% of C Corp. for $700,000 and accounts for the investment using the equity method. 4. For the defined benefit pension plan, the actuary uses an annual 5% discount rate, and the trustee uses a 6% expected rate of return. 5. Purchased 1,000 shares of D Corp. for $30 per share. The shares are classified as trading You are nrovided with the following information for Y1 and Y ? You are also provided with the following year-end balances Assume the following tax regulations: 1. The statutory tax rate is 25% for Y1 and Y2. At the end of Y2 Congress passed a law that increased the tax rate to 30% for Y3 and beyond. 2. The firm receives a deduction equal to the employee's gain on the exercise of the option when the option is exercised and a deduction for value of restricted share units when the restrictions elapse. 3. Interest income on the municipal bond is tax exempt. 4. Advance payments for subscription payments are taxed when received. 5. Insurance premium payments are deductible when paid. 6. Contributions to the pension fund are tax deductible. 7. Gains from the sale of investments are taxed when the shares are 8. Dividends received from investments are taxed when received. There is no such thing as the equity method in the tax code. Other information: 1. At the end of Y210,000 stock options were exercised. The fair value of the firm's stock on this date is $29 per share. The firm's stock had a value of $23 per share on June 30 of Year 2 when the restricted stock units and the stock options vested. 2. The firm expects every restricted share unit and stock option will vest. 3. Use "Income Taxes Payable" in your year-end journal entry. 4. Round all dollar amounts to the nearest dollar. 5. The reserve for uncertain tax benefits is related to the R&D tax credit. 1. At the end of year 2, calculate the deferred tax assets/liabilities at 25% and then at 30%. The difference in the value will be a reconciliation line item (tax rate change) 2. You will need to calculate equity method income and pension expense. For pension expense in Y1 there is no interest cost because there is no liability at the beginning of Y1. There will be an expected return because the contribution is made at the beginning of the period. 3. The tax credit represents a dollar-for-dollar reduction in taxes payable (do not multiply by the tax rate). 1. Prepare the year-end tax entry for each year. Assume that the tax entries are only prepared at the end of the year, i.e., not at the time of the individual transaction. 2. Prepare a schedule reconciling before tax income to taxable income and derive taxes payable. 3. Prepare the schedule of year-end deferred tax assets and liabilities for each year. The schedule should separately list the sources of the firm's ending deferred tax assets and deferred tax liabilities by their source. For example, the deferred tax asset/liability associated with the book/tax difference associated with the lease should be listed as a single source. The total for each schedule should equal the firm's deferred tax asset and deferred tax liability balance at the end of the year. 4. Prepare a schedule that reconciles the tax on earnings before tax at the statutory rate to tax expense. 1. Purchased a municipal bond for its face value of $600,000. The bond has a coupon rate of 6% (payable December 31 of each year), and a five-year maturity. The bond is accounted for as a "held to maturity" debt security. 2. Issued 8,000 restricted share units and 15,000 nonqualified stock options to employees. The shares are currently trading for $12 per share. The option exercise price is set equal to $12, and the fair value of each option is $3. The vesting service period for the restricted share units and stock options is 18 months. 3. The firm purchased 30% of C Corp. for $700,000 and accounts for the investment using the equity method. 4. For the defined benefit pension plan, the actuary uses an annual 5% discount rate, and the trustee uses a 6% expected rate of return. 5. Purchased 1,000 shares of D Corp. for $30 per share. The shares are classified as trading You are nrovided with the following information for Y1 and Y ? You are also provided with the following year-end balances Assume the following tax regulations: 1. The statutory tax rate is 25% for Y1 and Y2. At the end of Y2 Congress passed a law that increased the tax rate to 30% for Y3 and beyond. 2. The firm receives a deduction equal to the employee's gain on the exercise of the option when the option is exercised and a deduction for value of restricted share units when the restrictions elapse. 3. Interest income on the municipal bond is tax exempt. 4. Advance payments for subscription payments are taxed when received. 5. Insurance premium payments are deductible when paid. 6. Contributions to the pension fund are tax deductible. 7. Gains from the sale of investments are taxed when the shares are 8. Dividends received from investments are taxed when received. There is no such thing as the equity method in the tax code. Other information: 1. At the end of Y210,000 stock options were exercised. The fair value of the firm's stock on this date is $29 per share. The firm's stock had a value of $23 per share on June 30 of Year 2 when the restricted stock units and the stock options vested. 2. The firm expects every restricted share unit and stock option will vest. 3. Use "Income Taxes Payable" in your year-end journal entry. 4. Round all dollar amounts to the nearest dollar. 5. The reserve for uncertain tax benefits is related to the R&D tax credit. 1. At the end of year 2, calculate the deferred tax assets/liabilities at 25% and then at 30%. The difference in the value will be a reconciliation line item (tax rate change) 2. You will need to calculate equity method income and pension expense. For pension expense in Y1 there is no interest cost because there is no liability at the beginning of Y1. There will be an expected return because the contribution is made at the beginning of the period. 3. The tax credit represents a dollar-for-dollar reduction in taxes payable (do not multiply by the tax rate)