Accounting 3230-Fall 2018 Problem Set #3-The Last Problem Set Due Date: 13 December 2018 (Thursday) 5:00 p.m. 1 Accounting for come Teaes (G0 points) Pixie, Inc. began 2017 with the following balances in deferred tax accounts: $135,000 (DR) si 0,000 (CR) $120,000 (CR) The deferred tax asset resulted from $600,000 of unearned revenue that was received in 2015, but will be earned for financial reporting purposes evenly across the next four years (2016, 2017, 2018, and 2019). The deferred tax liability resulted from the financial accounting bases of depreciable assets exceeding the tax bases of depreciable assets by $400,000 due to excess MACRS depreciation over straight-line in previous years. Pre-tax accounting income in 2017 and 2018 is $300,000 and $315,000, respctively and includes non-taxable municipal bond interest of $70,000 in both 2017 and 2018. During 2017 MACRS (tax) depreciation exceeded straight-line (financial) depreciation by S100,000. In 2018 the timing difference related to depreciation began to reverse in that MACRS depreciation was S100.000 less than straight-line depreciation. In 2017, Pixie recognized $80,000 in installment revenue as part of pretax financial accounting income, but the money will not be received and taxable until 2018. Pixie also incurred a $50.000 fine in 2017 for an EPA violation which was appropriately recognized as an expense for financial reporting. At the end of 2017, management estimated that the DTA-Valuation Allowance account have a balance of 10% of the Deferred Tax Asset balance, Pixie management decided end of 2018, the valuation allowance should be 5% of the Deferred Tax Asset balance. that at the The tax rate was 30% for 2016 and 2017, but during2017 Congress changed the applicable tax elect to carry the loss forward to subsequent tax years Required: rate to 21% for 2018 and all subsequent years. In the event of a net operating loss, Pine would (a) Calculate taxable income for 2017 and 2018. (b) Calculate the balances in Deferred Tax Asset, Deferred Tax Liabilities, and DTA Valuation Allowance as of 12/31/17 and 12/31/18. Determine Income Tax Expense or Benefit for 2017 and 2018. Record the journal entries for income tax recognition that would be made as of the end of 2017 and 2018. (c) (d) (e) Calculate the effective tax rates for 2017 and 2018. () Prepare the bottom of the income statement for Pixie just for 2017, beginning with Income before Income Taxes-you do not need to separate income tax expense or benefit into current and non-current portions. Accounting 3230-Fall 2018 Problem Set #3-The Last Problem Set Due Date: 13 December 2018 (Thursday) 5:00 p.m. 1 Accounting for come Teaes (G0 points) Pixie, Inc. began 2017 with the following balances in deferred tax accounts: $135,000 (DR) si 0,000 (CR) $120,000 (CR) The deferred tax asset resulted from $600,000 of unearned revenue that was received in 2015, but will be earned for financial reporting purposes evenly across the next four years (2016, 2017, 2018, and 2019). The deferred tax liability resulted from the financial accounting bases of depreciable assets exceeding the tax bases of depreciable assets by $400,000 due to excess MACRS depreciation over straight-line in previous years. Pre-tax accounting income in 2017 and 2018 is $300,000 and $315,000, respctively and includes non-taxable municipal bond interest of $70,000 in both 2017 and 2018. During 2017 MACRS (tax) depreciation exceeded straight-line (financial) depreciation by S100,000. In 2018 the timing difference related to depreciation began to reverse in that MACRS depreciation was S100.000 less than straight-line depreciation. In 2017, Pixie recognized $80,000 in installment revenue as part of pretax financial accounting income, but the money will not be received and taxable until 2018. Pixie also incurred a $50.000 fine in 2017 for an EPA violation which was appropriately recognized as an expense for financial reporting. At the end of 2017, management estimated that the DTA-Valuation Allowance account have a balance of 10% of the Deferred Tax Asset balance, Pixie management decided end of 2018, the valuation allowance should be 5% of the Deferred Tax Asset balance. that at the The tax rate was 30% for 2016 and 2017, but during2017 Congress changed the applicable tax elect to carry the loss forward to subsequent tax years Required: rate to 21% for 2018 and all subsequent years. In the event of a net operating loss, Pine would (a) Calculate taxable income for 2017 and 2018. (b) Calculate the balances in Deferred Tax Asset, Deferred Tax Liabilities, and DTA Valuation Allowance as of 12/31/17 and 12/31/18. Determine Income Tax Expense or Benefit for 2017 and 2018. Record the journal entries for income tax recognition that would be made as of the end of 2017 and 2018. (c) (d) (e) Calculate the effective tax rates for 2017 and 2018. () Prepare the bottom of the income statement for Pixie just for 2017, beginning with Income before Income Taxes-you do not need to separate income tax expense or benefit into current and non-current portions