Chapter 18 Solutions

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EXERCISE 18-1 (10-15 minutes)

Add or deduct from accounting income
(a)2deduct
(b)1add
(c)3add
(d)1add
(e)2deduct
(f)2deduct
(g)1add
(h3deduct
(i)3deduct
(j)1add
(k)1add
(l)1add

EXERCISE 18-3 (15-20 minutes)

(a)
Accounting income$105,000
Permanent differences:
Non-deductible fines 11,000
116,000
Timing differences:
Excess of CCA over amortization (16,000)
Excess rent collected over rent earned  24,000
Taxable income$124,000
Current income taxes - 30% $37,200

(b)
Deductible
Balance(Taxable)Future TaxCurrent
SheetTemporaryTax AssetLong-
AccountDifferencesXRate(Liability)Term
PP & E($16,000)*30%($4,800) LT
Unearned
Rent revenue 24,00030% 7,200C
Future income tax asset, Dec. 31, 20092,400
Future income tax asset before adjustment 0
Incr. in future income tax asset and future
income tax benefit for 2009$2,400

*Carrying amount and tax basis are not given in the exercise, only the net difference (c)Current Income Tax Expense37,200
Income Tax Payable37,200

Future Income Tax Asset 7,200*
Future Income Tax Benefit2,400
Future Income Tax Liability 4,800*
*or a net debit to Future Income Tax Asset of $2,400

Because of a flat tax rate, these totals can be reconciled:
($24,000 – $16,000) X 30% = $7,200 + ($4,800).

EXERCISE 18-3 (Continued)

(d)Income before income taxes$105,000
Income tax expense
Current$37,200
Future benefit  (2,400) 34,800
Net income$70,200

(e)
Divided by
Accounting
@ 30% Income
Accounting income $ 105,000 31,500 30.0%
Non-deductible fines 11,000 3,300 3.1%
34,800 33.1%

Effective tax rate ($34,800/$105,000)33.1%

(f)Current assets
Future income tax asset$7,200
Non-Current liabilities
Future Income Tax Liability4,800

EXERCISE 18-9 (15-20 minutes)

(a)

Balance Deductible
Sheet (Taxable) Future Tax
AccountCarryingTaxTemporaryTaxAsset
Dec. 31, 2008AmountBasisDifferencesRate(Liability)
Warranty liability($130,000)$0 $130,000 25%$32,500
Future income tax asset, December 31, 200832,500
Future income tax asset before adjustment 0
Increase in future income tax asset and future income tax benefit for 2008$32,500

Future years
Total200920102011
Deductible temporary difference
Warranty liability $130,000 $50,000 $35,000 $45,000 Tax rate enacted for the year 25%25%25%
Future tax asset $32,500 $12,500 $8,750 $11,250 EXERCISE 18-9 (Continued)

(b)2008
Accounting income$135,000
Permanent differences:-0-
Timing difference:
Warranty expense > warranty costs
incurred 130,000
Taxable income 265,000
Current income taxes - 25%$66,250

(c)
Current Income Tax Expense66,250
Income Tax Payable 66,250

Future Income Tax Asset32,500
Future Income Tax Benefit32,500

(d)Income before income taxes$135,000
Income tax expense
Current$66,250
Future benefit (32,500)  33,750
Net income$101,250

EXERCISE 18-15 (40-45 minutes)

(a)
Basic Calculations of Capital Cost Allowance, Amounts and Balances:
C-B
(A)(B)A - B(C)Timing
YearBaseCCAUCCAmort. NBVDifference
2007 $600,000 X 40 % X .5 $ 120,000 $ 480,000 $120,000$480,000$0 2008 480,000 X 40 % 192,000 288,000 120,000360,000(72,000) 2009 288,000 X 40 % 115,200 172,800 120,000240,0004,800 2010 172,800 X 40 % 69,120 103,680 120,000120,00050,880 2011 103,680 X 40 % 41,472 62,208120,000078,528

$537,792

(b)
20072008200920102011
Accounting income $ 340,000 $340,000 $340,000 $340,000 $ 340,000 Timing...
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