Generally Accepted Accounting Principles and Income Tax Provision

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University of Chicago Booth School of Business Accounting and Financial Analysis I (B30016) Case 1: Acme United Corporation Selected Computations Prof. L. Soffer The journal entry summarizing the 2008 activity in the first table in the tax footnote is: Income tax provision $2,209,030 Deferred income tax asset/liability - net $224,277 Cash or income taxes payable $2,433,307

The journal entries summarizing the pretax effect of the charge to AOCI for the pension plan and the related tax effect are: Accumulated other comprehensive income (loss) $1,013,760 Pension asset/liability $1,013,760 Deferred income tax asset/liability – net $373,575 Accumulated other comprehensive income (loss) $373,575 The journal entry summarizing the transaction provided in the case is: Accumulated other comprehensive income (loss) $10,924 Deferred tax asset/liability – net The net effect of these journal entries on the net DTA position are: DR (CR) Provision entry Pension entry Exchange rate entry Net change in deferred tax position 224,277 373,575 (10,924) 586,928


This agrees with the change in the net position in the summary of deferred tax assets and liabilities at 12/31/08 and 12/31/07 ($586,928 = $783,223 – $196,295). Reconciliation of state taxes in tax provision summary to state tax effect in tax rate reconciliation: State taxes (from provision summary) Current Deferred Total state provision Federal savings generated (34%) Calculated net effect on tax provision Rounding, etc. State tax effect on provision in rate reconciliation 216,320 (12,911) 203,409 (69,159) 134,250 809 135,059

Pro forma financial statements reflecting accelerated depreciation and no valuation allowances: December 31, 2007 Reported Adjusts. Pro Forma 2,479,358 (391,697) 2,087,661 133,177 2,034,623 December 31, 2008 Reported Adjusts. Pro Forma 2,269,443 (599,197) 1,670,246 203,727 1,759,114

Property and equipment, net

Deferred tax assets - net All other assets Total assets Liabilities...
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