Q1) California Surplus Inc. qualifies to use the installment-sales method for tax purposes and sold an investment on an installment basis. The total gain of $75000 was reported for financial reporting purposes in the period of sale. The installment period is 3 years; one-third of the sale price is collected in 2012 and the rest in 2013. The tax rate was 35% in 2012, and 30% in 2013 and 30% in 2014. The accounting and tax data is shown below. Financial Accounting Tax Return 2012 (40% tax rate) Income before temporary difference $ 175,000 $ 175,000 Temporary difference $ 75,000 $ 25,000 Income $ 250,000 $ 200,000 2013 (35% tax rate) Income before temporary difference $ 200,000 $ 200,000 Temporary difference $ - $ 25,000 Income $ 200,000 $ 225,000 2014 (35% tax rate) Income before temporary difference $ 180,000 $ 180,000 Temporary difference $ - $ 25,000 Income $ 180,000 $ 205,000 Required: 1) Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable for 2012, 2013, and 2014. No deferred income taxes existed at the beginning of 2012. 2) Explain how the deferred taxes will appear on the balance sheet at the end of each year. (Assume Installment Accounts Receivable is classified as a current asset.) 3) Show the income tax expense section of the income statement for each year, beginning with ?Income before income taxes.? Q2) The Ambrosia Corporation's lead accountant shows the following info: On Jan 1, 2012, Ambrosia purchased a bottling machine for $800000 A) Straight-line basis depreciation for 5 years for tax purposes B) Half year convention for 8 years for financial reporting (See Appendix 11A.) C) Tax- exempt municipal bonds yielded interest of $150000 in 2013. D) Pretax financial income is $2300000 in 2012 and $2400000 in 2013. E) The company recognized an extraordinary gain of $150000 in 2013 (which is fully taxable). F) Taxable income is expected in future years with an expected tax rate of 35%. Required: 1) Compute taxable income and income taxes payable for 2013. 2) Prepare the journal entries for income tax expense, income taxes payable, and deferred taxes for 2013. 3) Prepare the deferred income taxes presentation for Dec 31, 2013 balance sheet.

Homework - Week 2 - Chapter 19 Problem 1: California Surplus Inc. qualifies to use the installmentsales method for tax purposes and sold an investment on an installment basis. The total gain of $75000 was reported for financial reporting purposes in the period of sale. The installment period is 3 years; one-third of the sale price is collected in 2012 and the rest in 2013. The tax rate was 35% in 2012, and 30% in 2013 and 30% in 2014. The accounting and tax data is shown below. Financial Accounting Tax Return Income before temporary difference $ 175,000 $ 175,000 Temporary difference $ 75,000 $ 25,000 Income $ 250,000 $ 200,000 2012 (35% tax rate) Homework - Week 2 - Chapter 19 2013 (30% tax rate) Income before temporary difference $ 200,000 Temporary difference $ Income $ 200,000 $ 25,000 $ 200,000 $ 225,000 Income before temporary difference $ 180,000 $ 180,000 Temporary difference $ $ 25,000 Income $ 180,000 $ 205,000 - 2014 (30% tax rate) Required: - Homework - Week 2 - Chapter 19 1 ) 2 ) 3 ) Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable for 2012, 2013, and 2014. No deferred income taxes existed at the beginning of 2012. Explain how the deferred taxes will appear on the balance sheet at the end of each year. (Assume Installment Accounts Receivable is classified as a current asset.) Show the income tax expense section of the income statement for each year, beginning with \"Income before income taxes.\" Homework - Week 2 - Chapter 19 Problem 2: The Ambrosi a Corpora tion's lead account ant shows the followin g info: On Jan 1, 2012, Ambrosi a purchas ed a bottling machine for $800000 A) Straight -line basis depreci ation for 5 years for tax purpose s (Use the half year convent ion for tax purpose s, as discuss ed in Applend ix 11A). B) Use 8 year useful life for financial reportin g C) Taxexempt Homework - Week 2 - Chapter 19 municip al bonds yielded interest of $150000 in 2013. D) Pretax financial income is $230000 0 in 2012 and $240000 0 in 2013. E) The compan y recogni zed an extraord inary gain of $150000 in 2013 (which is fully taxable). F) Taxable income is expecte d in future years with an expecte d tax rate of 35%. Require d: 1) Comput e taxable income and income taxes Homework - Week 2 - Chapter 19 2) 3) payable for 2013. Prepare the journal entries for income tax expense, income taxes payable, and deferred taxes for 2013. Prepare the deferred income taxes present ation for Dec 31, 2013 balance sheet