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    Income Taxes: Problems

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    Charles Mateo
    1) The document provides examples of problems involving the classification of differences between accounting profit and taxable income, as well as the calculation of current and deferred income tax. 2) It discusses permanent differences, taxable temporary differences, and deductible temporary differences and provides journal entries to record income tax expense and deferred tax balances. 3) The problems calculate taxable income, income tax payable, deferred tax assets and liabilities, and total income tax expense.

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    Income Taxes: Problems

    Uploaded by

    Charles Mateo
    539 views12 pages
    1) The document provides examples of problems involving the classification of differences between accounting profit and taxable income, as well as the calculation of current and deferred income tax. 2) It discusses permanent differences, taxable temporary differences, and deductible temporary differences and provides journal entries to record income tax expense and deferred tax balances. 3) The problems calculate taxable income, income tax payable, deferred tax assets and liabilities, and total income tax expense.

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    Part 2_Income Taxes

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    1) The document provides examples of problems involving the classification of differences between accounting profit and taxable income, as well as the calculation of current and deferred income tax. 2) It discusses permanent differences, taxable temporary differences, and deductible temporary differences and provides journal entries to record income tax expense and deferred tax balances. 3) The problems calculate taxable income, income tax payable, deferred tax assets and liabilities, and total income tax expense.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    539 views12 pages

    Income Taxes: Problems

    Uploaded by

    Charles Mateo
    1) The document provides examples of problems involving the classification of differences between accounting profit and taxable income, as well as the calculation of current and deferred income tax. 2) It discusses permanent differences, taxable temporary differences, and deductible temporary differences and provides journal entries to record income tax expense and deferred tax balances. 3) The problems calculate taxable income, income tax payable, deferred tax assets and liabilities, and total income tax expense.

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    You are on page 1of 12

    INCOME TAXES Noel A.

    Bergonia, CPA, MBA

    PROBLEMS
    PROBLEM 4-1
    Classify the following items that may cause discrepancy between accounting
    profit and taxable income, into the following types of differences:
    1 Uncollectible accounts expense in excess of accounts written off during the Deductible Temporary
    period. Difference
    2 Tax depreciation in excess of depreciation for accounting purposes. Taxable Temporary
    Difference
    3 Interest earned on investments in tax-exempt government securities. Non-taxable revenues
    4 Interest earned on deposits with bank. Non-taxable revenues
    5 Excess of profit earned over the profit reported under the installment Taxable Temporary
    method for income tax purposes. Difference
    6 Deductible insurance premiums paid in excess of insurance expense Taxable Temporary
    reported for financial reporting. Difference
    7 Provision for losses on pending lawsuit expected to be settled during the Deductible Temporary
    next accounting period. Difference
    PROBLEM 4-1
    Classify the following items that may cause discrepancy between accounting
    profit and taxable income, into the following types of differences:
    8Insurance premiums paid on life insurance policy where the entity is Non-deductible
    designated beneficiary. expenses
    9Impairment loss attributed to goodwill. Non-deductible
    expenses
    10Warranty expense reported for financial reporting purposes in excess Deductible Temporary
    of actual costs of repairs done during the period. Difference
    11Collections of rental in excess of rent revenue reported during the Deductible Temporary
    period. Difference
    12Dividends received by a domestic corporation from a domestic Non-taxable revenues
    corporation
    13Increase in fair value of equity investments measured at fair value Taxable Temporary
    through profit or loss. Difference
    PROBLEM 4-2
    You are given the following information for Carlos Corporation for the year
    ended December 31, 2020:
    a. Capital gains subjected to final withholding tax, P2,000,000.
    b. Fines and penalties for violations of law, P400,000.
    c. Premium payment for life insurance policy on president, P40,000. The
    president designated his family as beneficiary.
    d. Tax depreciation in excess of book depreciation, P1,500,000.
    e. Excess income on installment sales over income reportable for tax purposes,
    P1,000,000.
    f. Rent collected in advance of period earned, P750,000.
    g. Warranty provision accrued in advance of period paid, P400,000
    Pre-tax financial income is P10,000,000 ad income tax rate is 30%.
    PROBLEM 4-2
    A. Classify the permanent differences whether non-taxable revenues or non-deductible
    expenses. Classify the temporary differences whether taxable temporary differences or
    deductible temporary differences.
    a. Permanent difference - Nontaxable
    b. Permanent difference - Nondeductible
    c. Neither a permanent nor a temporary difference
    d. Temporary difference – Taxable temporary difference
    e. Temporary difference – Taxable temporary difference
    f. Temporary difference – Deductible temporary difference
    g. Temporary difference – Deductible temporary difference
    PROBLEM 4-2
    B. Calculate the taxable income
    Pretax financial income P10,000,000
    Nondeductible expenses (b) 400,000 400,000
    Nontaxable income (a) (2,000,000)
    Financial income subject to tax P 8,400,000
    Future deductible amounts (f + g) 750,000 + 400,000 1,150,000
    Future taxable amounts (d + e) 1,500,000 + 1,000,000 (2,500,000)
    Taxable net income P7,050,000

    C and D. Compute the income tax payable, deferred tax asset and deferred tax liability and
    prepare the entries relating to income tax.
    Income Tax Expense – Current 2,115,000
    Income Tax Payable 2,115,000
    30% x 7,050,000
    PROBLEM 4-2
    Income Tax Expense – Deferred 750,000
    Deferred Tax Liability 750,000
    30% x 2,500,000
    Deferred Tax Asset 345,000
    Income Tax Expense – Deferred 345,000
    30% x 1,150,000
    E. Compute the total income tax expense, identifying separately the current income tax expense
    and the deferred tax expense.

    Income tax expense:


    Current P2,115,000
    Deferred (750,000 – 345,000) 405,000
    Total income tax expense P2,520,000
    PROBLEM 4-5
    Mindanao Corporation, in its first year of operations, has the following differences between
    the book basis and tax basis of the assets and liabilities at the end of 2020.
    Book Basis Tax Basis
    Equipment (net) P4,000,000 P3,400,000
    Estimated warranty 2,000,000 -0-
    It is estimated that the warranty liability will be settled in 2021. The difference in
    equipment will result in taxable amounts of P200,000 in 2021, P300,000 in 2022 and
    P100,000 in 2023. The company has taxable income of P5,200,000 in 2020. As of the
    beginning of 2020, its enacted tax rate is 30% for 2020 to 2022 and 35% for 2023.
    Mindanao expects to report taxable income through 2023.

    Required:
    Journal entries to record income tax expense, current and deferred for 2020.
    PROBLEM 4-5

    Income Tax Expense – Current 1,560,000


    Deferred Tax Asset 600,000
    Deferred Tax Liability 185,000
    Income Tax Expense – Deferred (Benefit) 415,000
    Income Tax Payable 1,560,000
    30% x 5,200,000 = 1,560,000
    30% x 2,000,000 = 600,000
    (30% x 500,000) + (35% x 100,000) = 185,000
    PROBLEM 4-11
    The Emenem Company has determined that its taxable income for 2020 is
    P3,000,000. The following facts were gathered:
    Cumulative temporary difference, December 31, 2020
    Future Taxable Amount P1,500,000
    Future Deductible Amount 800,000
    Permanent Differences
    Non-taxable revenues 200,000
    Non-deductible expenses 600,000
    Deferred Tax Asset, December 31, 2019 150,000
    Deferred Tax Liability, December 31, 2019 300,000
    Income tax rate for current and future years is 30%.
    PROBLEM 4-11
    A.) Prepare the entries to recognize the current and deferred components of the income tax.

    Income Tax Expense – current 900,000


    Income Tax Payable 900,000
    30% x 3,000,000

    Deferred Tax Asset 90,000


    Income Tax Expense – Deferred 60,000
    Deferred Tax Liability 150,000
    30% x 800,000 = 240,000
    240,000 – 150,000 = 90,000
    30% x 1,500,000 = 450,000
    450,000 - 300,000= 150,000
    PROBLEM 4-11
    B. Compute for the following: Total income tax expense, accounting profit subject to tax and
    accounting profit before income tax.
    Current income tax P 900,000
    Deferred income tax 60,000
    Total income tax expense P 960,000

    Taxable income P3,000,000


    Future taxable amount [1,500,000 – (300,000/30%)] 500,000
    Future deductible amount [800,000 – (150,000/30%)] (300,000)
    Accounting profit subject to tax P3,200,000

    Accounting profit subject to tax P3,200,000


    Non-taxable revenue 200,000
    Non-deductible expense (600,000)
    Accounting profit before income tax P2,800,000

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