Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

AUDIT OF LIABILITIES 1. Canon Corporation reported accounting income before taxes as follows: 2018, P150, 000; 2019, P176, 000. Taxable income for each year would

AUDIT OF LIABILITIES

1. Canon Corporation reported accounting income before taxes as follows: 2018, P150, 000; 2019, P176, 000. Taxable income for each year would have been the same as pretax accounting income except for the tax effects, arising for the first time in 2018, of P600 per month rent revenue collected in advance on October 1, 2018, for the six months ending March 31, 2019. Rent revenue is taxable in the year collected. The tax rate for 2018 and 2019 is 30%, and the year-end for both accounting and tax purposes is December 31. The rent revenue collected in advance is the only difference, and it is not repeated in October 2019.

Requirements:

a. Is the difference a temporary or permanent difference? Explain.

b. Calculate income tax payable for 2018 and 2019 and prepare the journal entry to record income taxes for 2018 and 2019.

c. What amount of deferred income tax asset or liability would be reported on the 2016 and 2017 balance sheets?

2. Love Yourself owes P200, 000 plus P18, 000 of accrued interest to Primo Bank, The debt is a 10-year, 10% note. During 2017, Love yourself business deteriorated due to a faltering regional economy. On December 31, 2017, Primo bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of P390,000, accumulated depreciation of P221,000, and a fair market value of P190,000.

Requirements:

a. Prepare journal entries for Love yourself company to record the debt settlement.

b. Assume that, instead of transferring the machine, Love yourself decides to grant 15, 000 ordinary shares (P10 par) which have a fair value of 190,000 in full settlement of the loan obligation. Prepare the journal entries to record the transaction.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting

Authors: Ronald W Hilton

8th Edition

0073526924, 9780073526928

More Books

Students also viewed these Accounting questions