Business 225L Class 3 - Homework

Exercise 1

LTG Corporation is a calendar year accrual basis C-Corporation. The following information has been provided to you.

Book income for Year 2 Meals expense (before 50% disallowance)

Book depreciation expense for Year 2 Tax depreciation expense for Year 2

Book bad debt reserves at Year 1 end Book bad debt reserves at Year 2 end

Federal Tax rate California Tax Rate (assume 100% apportionment)

$1,000,000 40,000

100,000 350,000

70,000 30,000

21% 10%

1. What is the current tax liability for Year 2?

2. What are the deferred tax assets and/or deferred tax liabilities as of Year 2 end?

3. What is the current tax expense for Year 2? Please prepare the journal entry.

4. What is the deferred tax expense for Year 2? Please prepare the journal entry.

5. What is the effective tax rate?

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Business 225L Class 3 - Homework

Exercise 2

1.

How would the tax accounts change if the temporary difference for the bad debt reserve was a decrease of $70,000 instead of $40,000?

2.

A B C

What happens to the effective tax rate?

Increases Decreases No Impact

Please explain your answer.

3.

How would the tax accounts change if there was $150,000 of tax exempt income that was not taken into consideration?

What happens to the effective rate?

Increases Decreases No Impact

4.

A B C

Please explain your answer.

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Business 225L Class 3 - Homework

Exercise 3

Spartans Corp. is a calendar year accrual basis C Corporation. The following information has been provided:

Book income for Year 2 Foreign Derived Intangible Income Deduction

Accumulated book depreciation at Year 1 end Accumulated tax depreciation at Year 1 end

Book depreciation expense for Year 2 Tax depreciation expense for Year 2

Accumulated book depreciation at Year 2 end Accumulated tax depreciation at Year 2 end

Reserve for bad debt at Year 1 end Reserve for bad debt at Year 2 end

Accrued vacation (no payment w/in 2.5 mos.) as of Year 1 end Accrued vacation (no payment w/in 2.5 mos.) as of Year 2 end

Interest capitalized for books, deductible for tax, Year 1 Interest capitalized for books, deductible for tax, Year 2

Loss carryforward as of Year 1 end Loss carryforward as of Year 1 end on a more likely than not basis900,000

Assume the Company did not record any UTB as of Year 1 end as part of the year end provision analysis (i.e. gross NOL DTA was 1,300,000 as of Year 1 end)

Spartans Corp. Statutory tax rate as of Year 1end 35% Spartans Corp. estimated Statutory tax rate for Year 2 21%

Determine Spartans Corp. ASC 740 provision for Year 2 (current and deferred provision as well as the current tax liability and deferred tax asset/liability balance) and record the journal entry.

* Consider preparing a proof of total tax provision by preparing a rate reconciliation.

$2,500,000 200,000

700,000 800,000

500,000 900,000

2,000,000 2,500,000

200,000 70,000

60,000 100,000

0 80,000

1,300,000

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Business 225L Class 3 - Homework

Mini-Project

1. a) Locate and read the eBay 10-K for year ended December 31, 2018

2. b) Identify all of the required disclosures from the Class 3 reading assignment

   and match those required disclosures to the eBay 10-K.

3. c) Please write the ASC 740 citation for the relevant disclosure requirements

   next to the each section of the footnote in the eBay 10-K.