Questions: 14. After all adjustments, the December 31, YR07 general ledger balances for the deferred tax asset account should be a. 3 dr. b. 15 dr. c. 27 dr. d. 30 dr. e. none of the above.

17. Assume that information on the YR07 tax return correctly showed that Tax Paid or Payable for the year was $300. Also, assume that the correct general ledger balances were as follows:

Account	balance at January 1, YR07	Balance of December 31 YR07
Deferred Tax asset	0	30
Deferred Tax Liability	0	20
Income Tax Payable	0	85

Based solely on this information, the total income tax expense to be reported on the companys income statement for the year ended December 31, YR07 is: a. $280. b. $290. c. $310. d. $320. e. none of the above

Best Buy Inc., a cash-basis taxpayer, began operations during YR07; and the company has an operating cycle of 60 days. At the end of YR07 (its first year of operations) the controller prepared a reconciliation between pretax financial income and taxable income as follows: Description YR07 Pretax financial income 400 Litigation expense! 50 Accrued Interest Income? (10) Accrued Warranty Expense 40 Taxable income 480 1 -- The litigation expense of $50 represents the amount accrued for financial purposes related to a lawsuit that is currently underway. The company expects to settle the lawsuit and pay a settlement of $50 in YR08. For tax purposes the settlement payment will be deducted on the tax return when the payment is made (YR08). 2 -- At December 31, YR07 the company has earned and accrued $10 of interest income on a bond investment. This interest income will be received in early YR08. For tax purposes, the interest will be taxed in the year received (YR08). 3 -- In December YR07 the company accrued $40 of warranty expense related to YR07 sales. The company expects to to make cash payments related to these warranties as follows: $20 in YR08, $20 in YR09. Because the company is a cash-basis taxpayer the deductions for these payments will be taken on the YR08 and YR09 tax returns. During the year the only journal entry made related to income taxes was to record a tax deposit. That entry was: July 1, YR07: Income Tax Payable 100 Cash 100 In YR07, the company purchased a qualifying asset and earned an Investment Tax Credit of $50. The company has elected to account for the credit using the Flow-Through method. The Federal income tax rate is 40% for YR07, and 30% for YR08 and later years. Best Buy Inc., a cash-basis taxpayer, began operations during YR07; and the company has an operating cycle of 60 days. At the end of YR07 (its first year of operations) the controller prepared a reconciliation between pretax financial income and taxable income as follows: Description YR07 Pretax financial income 400 Litigation expense! 50 Accrued Interest Income? (10) Accrued Warranty Expense 40 Taxable income 480 1 -- The litigation expense of $50 represents the amount accrued for financial purposes related to a lawsuit that is currently underway. The company expects to settle the lawsuit and pay a settlement of $50 in YR08. For tax purposes the settlement payment will be deducted on the tax return when the payment is made (YR08). 2 -- At December 31, YR07 the company has earned and accrued $10 of interest income on a bond investment. This interest income will be received in early YR08. For tax purposes, the interest will be taxed in the year received (YR08). 3 -- In December YR07 the company accrued $40 of warranty expense related to YR07 sales. The company expects to to make cash payments related to these warranties as follows: $20 in YR08, $20 in YR09. Because the company is a cash-basis taxpayer the deductions for these payments will be taken on the YR08 and YR09 tax returns. During the year the only journal entry made related to income taxes was to record a tax deposit. That entry was: July 1, YR07: Income Tax Payable 100 Cash 100 In YR07, the company purchased a qualifying asset and earned an Investment Tax Credit of $50. The company has elected to account for the credit using the Flow-Through method. The Federal income tax rate is 40% for YR07, and 30% for YR08 and later years