Information for tax accrual Taxable income was 40000 in 2014

Information for tax accrual:

Taxable income was $40,000 in 2014 and $30,000 in 2015

Pretax (book) income for subsequent years includes the following: 2016 – a loss of $115,000, 2017 – income of $20,000, 2018 – income of $150,000.

Tax rates over the period are: 2014-2016 – 30%. Late in 2017, a tax rate of 40% was enacted for 2017 and all subsequent years.

Depreciation timing differences – the company had two assets on its books during this time period. The first asset cost $200,000 and was purchased in 2012. The second asset was purchased in 2016 at a cost of $300,000. The excel file has separate worksheets for book and tax depreciation. The book depreciation schedule is completed. You will need to complete the tax depreciation schedule using the MACRS table on page 578 of the text. The assets are classified as 7-year assets for MACRS.

Warranty timing difference – the beginning balance of the warranty liability account (1/1/16) was $85,000. Activity for the period of this assignment includes the following: 2016 – expense of $125,000 and warranty claims paid of $118,000, 2017 – warranty expense of $135,000 and warranty claims paid of $152,000, 2018 – warranty expense of $142,000 and warranty claims paid of $110,000.

Trading security – the company purchased an equity trading security in 2016 with a cost of $70,000. The fair value of the investment was $65,000 at December 31, 2016 and $95,000 at December 31, 2017. The investment was sold for $92,000 in 2018.

Nondeductible expenses were $5,000 in 2016, $1,000 in 2017, and $10,000 in 2018.

The company earned municipal interest of $4,000 in 2017. Nothing was earned in 2016 or 2018.

Required (Use formatted worksheets in excel file posted):

Prepare a book-to-tax reconciliation for 2016, 2017 and 2018

Prepare computations for the deferred tax accounts and prepare a journal entry for each year (similar to class format in excel).

Solution

Conlin Corporation had the following tax information.
2012: $300,000 (Taxable Income), 35% (Tax Rate), $105,000 (Taxes Paid)
2013: $325,000 (Taxable Income), 30% (Tax Rate), $97,500 (Taxes Paid)
2014: $400,000 (Taxable Income), 30% (Tax Rate), $120,000 (Taxes Paid)
In 2015, Conlin suffered a net operating loss of $480,000, which it elected to carry back. The 2015 enacted tax rate is 29%. Prepare Conlin\'s entry to record the effect of the loss carryback
Dr Income Tax Refund Receivable 144,000
Cr Benefit Due to Loss Carryback 144,000*

*480,000-325,000 = 155,000
325,000 x .3 = 97500
155,000 x .30 = 46,500
97,500 + 46,500 = 144,000