KPMG Accounting for Income Taxes Handout 2?
KPMG Accounting for income taxes Student handout 2 Deferred taxes exercise 2 XYZ Company (XYZ) had $20,000 in income before security gains each year, Year 1 Year 2 Year 3 Year 4 XYZ - U.S. GAAP Income before gains Unrealized gain - Mitchell stock Recognized gain - Mitchell stock Income before income taxes Current and deferred tax expense Net income XYZ-Tax Year 1 Year 2 Year 3 Year 4 Income before gains Unrealized gain Mitchell stock Recognized gain - Mitchell stock Taxable income Tax rate Current tax expense - Owe to IRS! XYZ purchased 500 shares of Mitchell stock for $10,000 in January of Year 1. Year Year 2 Year 3 Mitchell stock FMV as of 12/31/XX 12,000 15,000 Sold stock for 15,000 Current tax rate is 25%. The gains on the stock are taxable when sold. KPMG Deferred taxes exercise 2 U.S. GAAP income tax expense is a COMBO of now expense and later expense. Complete the schedule for gain differences between tax basis and the U.S. GAAP carrying amount: U.S. GAAP carrying amount Deferred tax- balance sheet (difference *25%] Deferred tax income statement Year Tax basis Temporary difference 1 2 3 4 Prepare the journal entry for each year: Year 1 Account title Debit Credit Year 2 Account title Debit Credit Year 3 Account title Debit Credit Year 4 Account title Debit Credit KPMG Deferred taxes exercise 2 Complete the schedule to reflect the activity during each year and the balance at the end of each year for XYZ's deferred tax liability on the balance sheet: Deferred tax liability Debit Credit 0 Balance Year 4 KPMG Accounting for income taxes Student handout 2 Deferred taxes exercise 2 XYZ Company (XYZ) had $20,000 in income before security gains each year, Year 1 Year 2 Year 3 Year 4 XYZ - U.S. GAAP Income before gains Unrealized gain - Mitchell stock Recognized gain - Mitchell stock Income before income taxes Current and deferred tax expense Net income XYZ-Tax Year 1 Year 2 Year 3 Year 4 Income before gains Unrealized gain Mitchell stock Recognized gain - Mitchell stock Taxable income Tax rate Current tax expense - Owe to IRS! XYZ purchased 500 shares of Mitchell stock for $10,000 in January of Year 1. Year Year 2 Year 3 Mitchell stock FMV as of 12/31/XX 12,000 15,000 Sold stock for 15,000 Current tax rate is 25%. The gains on the stock are taxable when sold. KPMG Deferred taxes exercise 2 U.S. GAAP income tax expense is a COMBO of now expense and later expense. Complete the schedule for gain differences between tax basis and the U.S. GAAP carrying amount: U.S. GAAP carrying amount Deferred tax- balance sheet (difference *25%] Deferred tax income statement Year Tax basis Temporary difference 1 2 3 4 Prepare the journal entry for each year: Year 1 Account title Debit Credit Year 2 Account title Debit Credit Year 3 Account title Debit Credit Year 4 Account title Debit Credit KPMG Deferred taxes exercise 2 Complete the schedule to reflect the activity during each year and the balance at the end of each year for XYZ's deferred tax liability on the balance sheet: Deferred tax liability Debit Credit 0 Balance Year 4
