Outline Review for Chapters 17-19 Possible Problems
1.—Permanent and temporary differences.
Listed below are items that are treated differently for accounting purposes than they are for tax purposes. Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they will create deferred tax assets or deferred tax liabilities.
Investments accounted for by the equity method.
Advance rental receipts.
Fine for polluting.
Estimated future warranty costs.
Excess of contributions over pension expense.
Expenses incurred in obtaining tax-exempt revenue.
Excess tax depreciation over accounting depreciation.
Long-term construction contracts.
Premiums paid on life insurance of officers (company is the beneficiary).
2. Deferred income taxes.
Pole Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
Pretax financial income
Extra depreciation taken for tax purposes
Estimated expenses deductible for taxes when paid
Use of the depreciable assets will result in taxable amounts of $350,000 in each of the next three years. The estimated litigation expenses of $840,000 will be deductible in 2013 when settlement is expected.
Prepare a schedule of future taxable and deductible amounts. (b)
Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2010, assuming a tax rate of 40% for all years.
3. Journal entries—percentage-of-completion.
Dixon Construction Company was awarded a contract to construct an interchange at the junction of U.S. 94 and Highway 30 at a total contract price of $8,000,000. The estimated total costs to complete the project were $6,000,000.
Make the entry to record construction...
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