Chapter 16

Problem 16–1

Requirement 1

Related Asset – Cumulative Balance (not required)
($ in thousands) Collections Service Revenue Service previous current Receivable Revenue year year Balance 2012 $30 2013 $750 30 740 10 2014 715 10 690 25 2015 700 25 695 5
Problem 16–1 (continued)

($ in thousands) Current Future Year Taxable 2013 Amount

Pretax accounting income 250 Temporary difference: 2012 services (30) 30 2013 services (10) 10

Taxable income (income tax return) 270

Enacted tax rate 40% 40% Tax payable currently 108 Deferred tax liability 4 ( Deferred tax liability: Ending balance (balance currently needed) $ 4 Less: Beginning balance: ([$650 – 620] x 40%) (12) Change needed to achieve desired balance $ (8)

Journal entry at the end of 2013 Income tax expense (to balance) 100 Deferred tax liability (determined above) 8 Income tax payable (determined above) 108

Problem 16–1 (continued)

Requirement 2

($ in thousands) Current Future Year Taxable 2014 Amount

Pretax accounting income 220 Temporary difference: 2013 services (10) 10 2014 services (25) 25

Taxable income (income tax return) 205

Enacted tax rate 40% 40% Tax payable currently 82 Deferred tax liability 10 ( Deferred tax liability: Ending balance (balance currently needed) $10 Less: Beginning balance: (from 2013 calculation) (4) Change needed to achieve desired balance $ 6

Journal entry at the end of 2014 Income tax expense (to balance) 88 Deferred tax liability (determined above) 6 Income tax payable (determined above) 82

Problem 16–1 (concluded)

Requirement 3

($ in thousands) Current