Problem 166 Multiple differences temporary difference yet to

Problem 16-6 Multiple differences; temporary difference yet to originate; multiple tax rates, classification [L016-5, 16-6, 16-8] You are the new accounting manager at the Barry Transport Company. Your CFO has asked you to provide input on the company\'s income tax position based on the following: 1. Pretax accounting income was $56 million and taxable income was $12 million for the year ended December 31, 2016 2. The difference was due to three items: a. Tax depreciation exceeds book depreciation by S40 million in 2016 for the business acquired that year. This amount is scheduled to be $60 million in 2017 and to reverse as ($50 million) and ($50 million) in 2018, and 2019, respectively b. Insurance of $8 million was paid in 2016 for 2017 coverage. c. A S4 million loss contingency was accrued in 2016, to be paid in 2018. 3. No temporary differences existed at the beginning of 2016. 4. The tax rate is 40%. Required: 1. Determine the amounts necessary to record income taxes for 2016 and prepare the appropriate journal entry. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Solution

Part 2

1. Current income tax expense A/c dr. $4.80 million ($12 million*40%)

                               To income tax payable A/c Cr. $4.80 million

2. Deferred tax Expense (depreciation) A/c Dr. $ 14.00 million ($ 40 million * 35%)

     Deferred tax Expense (Insurance) A/c Dr. $ 3.20 million ($ 8 million * 40%)

                                            To Deferred Tax liabilities A/c Cr. $ 17.20 million

3. Deferred tax liability A/c Dr. $ 1.40 million ($4 million*35%)

                                  To Deferred tax expense (Contingency loss) A/c Cr. $ 1.40 million

4. Profit and loss A/c Dr. $ 20.60 million

    Deferred tax expense (Contingency loss) A/c dr. $ 1.40 million

                                              To Current income tax expense A/c Cr. $4.80 million

                                             To Deferred tax Expense (depreciation) A/c Cr. $ 14 million

                                             To Deferred tax Expense (Insurance) A/c Cr. $ 3.2 million

S.no	Particulars	Debit ($ in million)	Credit ($ in million)
1	Income Tax Expenses	20.80
	Deferred Tax Asset	1.60
	Deferred Tax Liability		17.60
	Income Tax Payable		4.80