problem 49

Problem 49

Requirement 1

Determine the taxable income, current tax expense, deferred income tax asset/liability, deferred tax expense/benefit of Walsh Trading as of December 31, 2014

Accounting Income P 220,000.00

Permanent Differences:

Nondeductible Expenses P 40,000.00

Nontaxable Revenues (14,000.00)

26,000.00

Accounting Income Subject to Tax P 246,000.00

Temporary Differences:

Unrealized ForEx Gains on Loans Payable (Future Taxable) P

(70,000.00)

Accrued Warranty Expenses (Future Deductible) 80,000.00

10,000.00

Taxable Income, 2014 P 256,000.00

Taxable Income, 2014 P

256,000.00

Regular Corporate Income Tax Rate x 40%

Current Tax Expense, 2014 P

102,400.00

Deferred Tax Liability / Deferred Tax Expense

Unrealized ForEx Gains on Loans Payable (Future Taxable)

2015 (P 14,000 x 35%) P 4,900.00

2016 (P 32,000 x 32%) 10,240.00

2017 (P 24,000 x 30%) 7,200.00

Deferred Tax Liability, Dec. 31, 2014 / Deferred Tax Expense, 2014 P

22,340.00

Deferred Tax Asset / Deferred Tax Benefit

Accrued Warranty Expense (Future Deductible)

2015 (P 14,000 x 35%) P

4,900.00

2016 (P 36,000 x 32%) 11,520.00

2017 (P 18,000 x 30%) 5,400.00

2018 (P 12,000 x 34%) 4,080.00

P 25,900.00

Deferred Tax Asset from Excess (Future Deductible)

80,000.00

Deferred Tax Asset, Dec. 31, 2014 / Deferred Tax Benefit, 2014

P 105,900.00

Treatment of Excess of MCIT over RCIT

Minimum Corporate Income Tax, 2014 (P10,000,000 x 2%) P 200,000.00

Regular Corporate Income Tax, 2014 (see Current Tax Expense, 2014)

(102,400.00)

Excess of MCIT over RCIT, 2014 P 97,600.00

In 2015, no credit is to be applied since it is expected that MCIT will still exceed RCIT. P 0

In 2016, a credit will be applied to RCIT for the period:

80,000.00

Deferred Tax Asset from Excess P 80,000.00

Requirement 2

Prepare all the necessary journal entries for 2014 in Walsh Trading Books

2014 Dec. 31 Current Tax Expense

200,000

Current Tax Payable 200,000

Current tax expense for 2014 at MCIT. Deferred Tax Asset 83,560 Income Tax Benefit

83,560

Deferred Tax Liability P (22,340)Deferred Tax Asset 25,900MCIT 80,000

Net Deferred Tax Asset P 83,560

Requirement 3

Prepare a partial income statement for Walsh Trading beginning with “income before income taxes” for the year ended December 31, 2014

Walsh TradingPartial Income Statement

For the Year Ended December 31, 2014

Income before Income Taxes P 220,000

Income Tax Expense:

Current Tax Expense P 200,000

Deferred Tax Expense 22,340

Deferred Tax Benefit (105,900) (116,440)

Net Income After Tax P 103,560