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Accounting 21 Deferred Income Tax Name: __________________________________

1. Wall Company leased office premises to Fox Inc for a 4 year term beginning January 2, 2012. Under the terms of the operating lease, rent for the first year is P216,000 and rent for the years 2 through 4 is P337,500 per annum. However, as an inducement to enter the lease, Fox was allowed to use the leased assets rent free for the first three months. Income tax rate for all years is 32%. In its December 31, 2012 statement of financial position of Wall Company, what amount should be reported as -deferred tax liability? a. None b. 42,120 c. 51,840 d. 93,969 2.Dragon Companys December 31, 2012 pretax financial statement was P5,000,000 and its taxable income was P3,750,000. The difference is due to the following: Interest income on savings deposit Premium expense on life insurance Total 1,750,000 ( 500,000) 1,250,000

The income tax rate is 32%. In its 2012 profit or loss, what amount should Dragon report as current provision for income tax expenses a. 1,200,000 b. 1,360,000 c. 1,600,000 d. 1,760,000 3.For the year ended December 31, 2012, Charitable Company reported pretax accounting income of P6,000,000. The taxable income was P7,000,000. The difference is due to rental received in advance. Rental income is taxable when received. The income tax rate is 30% and Charitable Company made estimated tax payment of P1,000,000 in 2012. What amount should Charitable Company report as total income tax expense for 2012? a. 2,100,000 b. 1,800,000 c. 1,100,000 d. 1,000,000 4.For the year ended December 31, 2012, Cardinal Company reported pretax financial income of P750,000. The taxable income was P650,000. The difference is due to accelerated depreciation for income tax purposes. The income tax rate is 30% and Cardinal Company made estimated tax payment during 2011 of P90,000. What should Cardinal Company report as current tax expense for 2012? a. 105,000 b. 195,000 c. 135,000 d. 225,000 5.On December 31, 2012, the first year of operation, Dainty Company had taxable temporary difference totaling P3,000,000. Of this amount, P500,000 relates to current items. Dainty Company also had deductible temporary differences totaling P1,000,000, P250,000 of which relates to current items. Pretax financial income for the year was P20,000,000. The income tax rate is 30%. What amount should Dainty Company report as income tax payable on December 31, 2011? a. 5,925,000

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b. 6,000,000 c. 6,600,000 d. 5,400,000 6.Damsel Company, organized on January 1, 2012, had pretax accounting income of P5,000,000 and taxable income of P7,000,000 for 2012. The only temporary difference is accrued product warrant cost that is expected to be paid in 2013. The enacted tax rates are 30% for 2012 and 25% for 2013 and thereafter. What amount should be reported as total income tax expense in the income statement for 2012? a. 1,500,000 b. 2,100,000 c. 1,250,000 d. 1,600,000 7.On December 31, 2011, Efficient Company reported a deferred tax liability of P600,000 and a deferred tax asset of P150,000. At the end of 2012, Efficient Company reported a deferred tax liability of P900,000 and a deferred tax asset of zero. What is the deferred tax expense for 2012? a. 300,000 b. 450,000 c. 150,000 d. 900,000 8.Elusive Company has the following financial statement elements for which the December 31, 2012 carrying amount is different from tax basis: Carrying amount Tax basis Difference Equipment 5,500,000 4,000,000 1,500,000 Accrued liability-health care 500,000 0 500,000 Computer software cost 2,000,000 0 2,000,000 The difference between the carrying amount and tax basis of the equipment is due to the accelerated depreciation for tax purposes. The accrued liability is the estimated health care cost that was recognized expense in 2012 but deductible for tax purposes when actually paid. In January 2012, Elusive Company incurred P3,000,000 of computer software cost. Considering the technical feasibility of the project, this cost was capitalized and amortized over 3 years for accounting purposes. However, the total amount was expensed in 2012 for tax purposes. The pretax accounting income for 2012 is P15,000,000. The income tax rate is 30% and there are no deferred taxes on January 1, 2012. What amount should Elusive Company report as current tax expense for 2011? a. 4,500,000 b. 3,600,000 c. 3,300,000 d. 5,700,000 9.Fainthearted Company has three financial statement elements for which the December 31, 2012 carrying amount is different from tax basis. Carrying amount Tax basis Equipment 2,000,000 1,200,000 Prepaid officers insurance policy 750,000 0 Warranty liability 500,000 0 What total amount should be recognized as future taxable differences? a. 2,050,000 b. 1,550,000 c. 800,000 d. 500,000

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10. Fateful Company reported the following items in its income statements for 2011: Payment of penalty Insurance premium in life of an officer with Fateful Company as beneficiary What total amount should be reported as temporary differences? a. 150,000 b. 100,000 c. 50,000 d. 0 11.Triad Corporation reported a pretax financial income of P5,000,000 for the year ended December 31, 2012. The following items are included in the determination of financial income: Estimated litigation loss which will become tax deductible when settled in the future, P300,000; Revenue from installment sale which will be recognized as taxable income as received over the next three years, P600,000; Other unearned revenue, P150,000; Dividends received, P100,000 If the income tax rate is 33% for all years, what amount of total tax expense and current tax expense should Triad Company report respectively? a. 1,617,000 and 1,567,500 b. 1,617,000 and 1,518,000 c. 1,650,000 and 1,664,000 d. 1,650,000 and 1,518,000 12. Myriad Corporation computed a pretax financial income of P6,000,000 for the year ended December 31, 2012. In preparing the tax return, the following differences are noted between financial income and taxable income: Nontaxable revenue, P600,000; Nondeductible expense, P200,000; Estimated warranty cost that was recognized as expense in 2012 but deductible for tax when paid P300,000; Excess tax depreciation over financial depreciation, P250,000; excess financial revenue over tax revenue, P200,000. What is the total tax expense assuming the tax rate for 2012 is 32% and 2013 is 33%? a. 1,742,500 b. 1,744,000 c. 1,793,500 d. 1,792,000 13. For the year ended December 31, 2012, Marian Corporation reported pretax financial income of P6,000,000. Its taxable income was P8,000,000. The difference is due to rental received in advance. Rental income is taxable when received. The income tax rate is 32% and Marian made estimated tax payment of P1,000,000. What should Marian report as 2012 total income tax expense and deferred tax liability? a. 1,920,000 and 0 b. 1,920,000 and 640,000 c. 2,560,000 and 640,000 d. 2,560,000 and 0 14. Taft Company leased a facility and received P600,000 annual rental payment on June 16, 2012. The beginning of the lease was July 1, 2012. Rental income is taxable when received. The income tax rate is 32%. Taft had no permanent other permanent or temporary differences. Taft determined that no valuation is needed. Q1. Using the balance sheet liability method, what amount of deferred tax asset should Taft report in its December 31, 2012 financial position? 50,000 100,000

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a. b. c. d. 192,000 204,000 96,000 0

Q2. Using the income statement liability method, what amount of what amount of deferred tax asset should Taft report in its December 31, 2012 financial position? a. 192,000 b. 204,000 c. 96,000 d. 0 15. On June 30, 2012, Mania Corporation prepaid a P380,000 premium on an insurance policy. The premium payment was a tax deductible expense in Manias 2012 cash basis tax return. The accrual basis income statement will report P190,000 insurance expense in 2012 and 2013. Assume the income tax rate is 32%. Using the balance sheet liability method, in Manias December 31, 2012 financial position, what amount related to the insurance should be reported as deferred assets? a. 0 b. 60,800 c. 121,600 d. 182,400 16. On January 2, 2012, Callaway Company acquired a machinery at a cost of P2,000,000. The machinery has an estimated life of 20 years. It is the companys policy to depreciate the asset on a straight line basis for financial purposes. Tax legislation authority allows depreciation to be deducted on a double declining balance method. On December 31, 2012 Callaway Company recognized an impairment loss of P400,000 on the machinery. Q1. What is the amount of temporary difference relating to the liability? a. None b. 300,000 c. 1,500,000 d. 1,800,000 Q2. If the current and future tax rates are 34% and 35% respectively, what amount of deferred tax liability should the company recognize? a. None b. 136,000 c. 140,000 d. 276,000 17. On January 1, 2012, Icor Company has spent P900,000 in developing a new product. These costs meet the definition of an intangible asset under PAS38 and have been recognized in the balance sheet. Local tax legislation allows these costs to be deducted for tax purposes when they are incurred. On December 31, 2013, the intangible is deemed impaired by P75,000. What amount of tax base related to the intangible asset as of December 31, 2012? a. Zero b. 75,000 c. 825,000 d. 900,000

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18. Toner Company has revalued its property and has recognized the increase in the revaluation reserve in its financial statements. The carrying value of the property was P8,000,000 and the revalued amount was P10,000,000. The tax base of the property was P6,000,000. The tax rate is 32%. What amount of deferred tax liability should the company recognize? a. None b. 640,000 c. 1280,000 d. 2,000,000