Question 1

Harvard Company reports pre-tax financial income of $100,000 for 2010. The following items cause taxable income to be different than pre-tax financial income:

• Insurance expenses amounting to $20,000 was prepaid on 12/31/2010. This will expire evenly throughout the next 2 years.
• At year-end, tenants owed Harvard rent of $30,000 for the year 2010. Based on past experience, this will be collected in the following year.
• Fines for pollution appear as an expense of $5,000 on the income statement

Harvards tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2010.

Required:

a) Compute taxable income and income taxes payable for 2010.

b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2010.

Question 2

For both GAAP and tax purposes, Raymond Incorporated reported the following pre-tax income (loss) for each of the years:

Year Pre-tax income Tax Rate

2008 $180,000 30%

2009 120,000 30%

2010 (400,000) 40%

2011 80,000 40%

Required:

Assuming that the carry back provision is used, prepare all the necessary journal entries for each year 2008-2011 to record income tax expense (benefit) and income tax payable (refundable), and the tax effects of the loss carry back and loss carry forward. (Assume that no valuation allowance is required)