ACC 302 Computation Questions and Correct
Answers
At Dec 21, 2025, Pearl Corporation has a deferred tax asset of $218,000. After a careful
review of all available evidence, it is determined that is more likely than not that
$65,400 of this deferred tax asset will not be realized. Prepare the necessary journal
entry.
Debit: Income Tax Expense 65,400 Credit: Allowance to Reduce 65,400
The differences between the book basis and tax basis of the assets and liabilities of
Sheridan Inc. at the end of 2024 are presented below.
Accounts receivable Book Basis- $177,000 Tax Basis-0 Warranty accrual Book Basis-
117,000 Tax Basis-0
It is estimated that the warranty accrual will be settled in 2025 (76,000) and 2026
(41,000). The difference in accounts receivable will result in taxable amounts of 59,000
in 2025, 2026, 2027. The company has taxable income of 195,000 in 2024 and is expected
to have taxable income in each of the following 3 years. Its enacted tax rate is 35% for
all years. This is the company's first year of operations. Prepare the journal entry to
record income tax expense, deferred income taxes, and income tax payable for 2024.
Debit- Income Tax Expense 89250 Debit- Deferred Tax Asset (11700035%) Credit- Income
Tax Payable (19500035%) Credit- Deferred Tax Liability (177000*35%)
Balance Sheet- Date
Long-term Liabilities
Deferred Tax Liability (tax liability-tax asset)
Sunland Corp. prepared the following reconciliation for 2021, its first year of
operations:
,Pretax financial income for 2021 $2088000
Tax exempt interest (366000)
Originating temporary difference (716000)
Taxable income $1006000
The temporary difference will reverse evenly over the next two years at an enacted tax
rate of 35%. The enacted tax rate for 2021 is 30% What amount should Sunland report
in its 2021 income statement as the deferred portion of the provision for income taxes?
(716000*35%) 250600
Cullumber Inc had pre-tax accounting income of $1849000 and a tax rate of 35% in
2021, its first year of operations. During 2021 the company had the following
transactions:
Received rent from Barrett Co. for 2022-65800
Municipal bond income-83500
Depreciation for tax purposes in excess of book depreciation-43400
Installment sales revenue to be collected in 2022-113000 For 2021, what is the amount of
income taxes payable for Cullumber Inc?
(1849000+65800-83500-43400-113000)*35%= 586215
Oriole Company reported the following results for the year ended Dec 31, 2025, its first
year of operations: Income (per books before income taxes) $1559000 Taxable Income
2750000
The disparity between book income and taxable income is attributable to a temporary
difference that will reverse in 2026. What should Oriole record as a net deferred tax
asset or liability for the year ended Dec 31, 2025, assuming that the enacted tax rate in
effect is 30% in 2025 and 25% in 2026?
, (2750000-1559000)*25%= 297750 deferred tax asset
Oriole Corp reported $236000 in revenues in its 2021 financial statements, of which
89400 will not be included in the tax return until 2022. The enacted tax rate is 40% for
2021 and 35% for 2022 What amount should Oriole report for deferred tax liability in
its balance sheet at Dec 31, 2021?
89400*.35=31290
Pharoah Corp. prepared the following reconciliation for its first year of operations:
Pretax financial income for 2025 $2300000
tax-exempt interest (142000)
Originating temporary difference (434000)
Taxable income $1724000
The temporary difference will reverse evenly over the next 2 years at an enacted tax
rate of 30% The enacted tax rate for 2025 is 20%. What amount should be reported in
its 2025 income statement as the current portion of its provision for income taxes?
(1724000*20%)=344800
Sunland Corp has a deferred tax asset at Dec 31, 2026 of 170000 due to the recognition
of potential tax benefits of an operating loss carryforward. The enacted tax rates are as
follows:30% for 2023-2025; 25% for 2026; and 20% for 2027 and thereafter. Assuming
that management expects that only 50% of the related benefits will be realized, a
valuation account should be established in the amount of
(170000*50%)-170000=85000
Answers
At Dec 21, 2025, Pearl Corporation has a deferred tax asset of $218,000. After a careful
review of all available evidence, it is determined that is more likely than not that
$65,400 of this deferred tax asset will not be realized. Prepare the necessary journal
entry.
Debit: Income Tax Expense 65,400 Credit: Allowance to Reduce 65,400
The differences between the book basis and tax basis of the assets and liabilities of
Sheridan Inc. at the end of 2024 are presented below.
Accounts receivable Book Basis- $177,000 Tax Basis-0 Warranty accrual Book Basis-
117,000 Tax Basis-0
It is estimated that the warranty accrual will be settled in 2025 (76,000) and 2026
(41,000). The difference in accounts receivable will result in taxable amounts of 59,000
in 2025, 2026, 2027. The company has taxable income of 195,000 in 2024 and is expected
to have taxable income in each of the following 3 years. Its enacted tax rate is 35% for
all years. This is the company's first year of operations. Prepare the journal entry to
record income tax expense, deferred income taxes, and income tax payable for 2024.
Debit- Income Tax Expense 89250 Debit- Deferred Tax Asset (11700035%) Credit- Income
Tax Payable (19500035%) Credit- Deferred Tax Liability (177000*35%)
Balance Sheet- Date
Long-term Liabilities
Deferred Tax Liability (tax liability-tax asset)
Sunland Corp. prepared the following reconciliation for 2021, its first year of
operations:
,Pretax financial income for 2021 $2088000
Tax exempt interest (366000)
Originating temporary difference (716000)
Taxable income $1006000
The temporary difference will reverse evenly over the next two years at an enacted tax
rate of 35%. The enacted tax rate for 2021 is 30% What amount should Sunland report
in its 2021 income statement as the deferred portion of the provision for income taxes?
(716000*35%) 250600
Cullumber Inc had pre-tax accounting income of $1849000 and a tax rate of 35% in
2021, its first year of operations. During 2021 the company had the following
transactions:
Received rent from Barrett Co. for 2022-65800
Municipal bond income-83500
Depreciation for tax purposes in excess of book depreciation-43400
Installment sales revenue to be collected in 2022-113000 For 2021, what is the amount of
income taxes payable for Cullumber Inc?
(1849000+65800-83500-43400-113000)*35%= 586215
Oriole Company reported the following results for the year ended Dec 31, 2025, its first
year of operations: Income (per books before income taxes) $1559000 Taxable Income
2750000
The disparity between book income and taxable income is attributable to a temporary
difference that will reverse in 2026. What should Oriole record as a net deferred tax
asset or liability for the year ended Dec 31, 2025, assuming that the enacted tax rate in
effect is 30% in 2025 and 25% in 2026?
, (2750000-1559000)*25%= 297750 deferred tax asset
Oriole Corp reported $236000 in revenues in its 2021 financial statements, of which
89400 will not be included in the tax return until 2022. The enacted tax rate is 40% for
2021 and 35% for 2022 What amount should Oriole report for deferred tax liability in
its balance sheet at Dec 31, 2021?
89400*.35=31290
Pharoah Corp. prepared the following reconciliation for its first year of operations:
Pretax financial income for 2025 $2300000
tax-exempt interest (142000)
Originating temporary difference (434000)
Taxable income $1724000
The temporary difference will reverse evenly over the next 2 years at an enacted tax
rate of 30% The enacted tax rate for 2025 is 20%. What amount should be reported in
its 2025 income statement as the current portion of its provision for income taxes?
(1724000*20%)=344800
Sunland Corp has a deferred tax asset at Dec 31, 2026 of 170000 due to the recognition
of potential tax benefits of an operating loss carryforward. The enacted tax rates are as
follows:30% for 2023-2025; 25% for 2026; and 20% for 2027 and thereafter. Assuming
that management expects that only 50% of the related benefits will be realized, a
valuation account should be established in the amount of
(170000*50%)-170000=85000
