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Anarme Taxis 465 Income tax expense and Current tax expense PROBLEM 6: FOR CLASSROOM DISCUSSION 1. Entity A has the following information: Pretex income Penalties on violation of law 500,000 5,000 20,000 100,000 Tax rate Interest income on bank deposits Excess of revenue recognized over taxable income Bad debts expense accrued but not yet tax-deductible 40,000 Advances from customers, taxable upon collection 18,000 30% Beginning balance of taxable temporary difference 22,000 Beginning balance of deductible temporary difference 14,000 Requirements: Compute for the following a Income tax expense and Current tax expense b. Deferred tax expense/benefit c. Current tax payable d. Deferred tax liability and Deferred tax asset (ending balances) e Provide the journal entry. Asset-liability Method 2 The following information was taken from the records of Entity A as of December 31, 20x1: Carrying amount Tax base Difference Computer software cost 500,000 500,000 1,000,000 600,000 400,000 Accrued liability - health care 200,000 200,000 Machinery Additional information: Software development costs after technological feasibility was established were capitalized for financial reporting. The costs were recognized as outright deductions for tax purposes. Straight line method is used in depreciating the machinery, while sum-of-the-years' digits method is used for tax purposes. Health care benefits are accrued as incurred but are tax deductible only when cash is actually paid. Pretax profit for 20x1 is P1,000,000. Income tax rate is 30%. 466 Chapter There were no temporary differences as of January 1, 20x1. Requirements: Compute for the following: a. Deferred tax liability and Deferred tax asset b. Income tax expense and Current tax expense c. Deferred tax expense/benefit d. Provide the journal entry. Tax base of assets and liabilities 3. Zevrek Co. has the following assets and liabilities: a) Accounts receivable of P10,000 from rendering of services, The related revenue will be taxed only when collected, b) Prepaid insurance of P20,000 taken on life of key employee Zevrek is the beneficiary. Not tax-deductible. c) Interest payable of P30,000, the repayment of which will have no tax consequence. d) Accrued utilities expenses of P40,000 - tax-deductible only when paid. Requirement: Compute for the deferred tax liability and deferred tax asset. Use an income tax rate of 30%. Limitation on recognition of deferred tax asset 4. As of December 31, 20x1, Eureka Co. has a deductible temporary difference of P300,000 and an unused tax loss of P50,000 which can be used as tax deduction in future periods. Eureka Co. reassesses its deferred tax asset and determines that it is more likely than not that only three-fourths of the subject to an income tax rate of 30%. What amount of deferred related future tax deduction will be utilized. Eureka Co. is tax asset should Eureka Co. recognize on December 31, 20x