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ACCT 305 Lecture Notes - Lecture 22: Retained Earnings, Net Income, Income Statement

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blushsnake623
14 Apr 2020
School
VCU
Department
Accounting
Course
ACCT 305
Professor
Myung Park

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Document Summary

Sample practice questions: acct305 (do not distribute to others) 22: on january 1, 2012, piper co. , purchased a machine (its only depreciable asset) for. The machine has a five-year life, and no salvage value. Sum-of-the-years"- digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting. Effective january 1, 2015, for financial statement reporting, piper decided to change to the straight-line method for depreciation of the machine. Piper"s income before depreciation, before income taxes, and before the cumulative effect of the accounting change (if any), for the year ended december 31, 2015, is ,000. The income tax rate for 2015, as well as for the years 2012-2014, is 30%. What amount should piper report as net income for the year ended december 31, 2015? a. ,000: ,000, ,000, ,000. 2015 ni = (500,000 -60,000) (440,000*30%) = 308,000.

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Related Questions

Farmer Co. purchased a sowing machine on January 1, 2013. Forits sowing machines, Farmer Co. uses straight-line depreciation forfinancial reporting purposes (US GAAP) and accelerated depreciationfor tax purposes. The book value of the newly purchased sowingmachine is $1,500. Its useful life is 3 years. Assume income beforedepreciation is $1,000 in 2013, $900 in 2014, and $1100 in 2015,respectively. Farmer Co. has a 30% income tax rate for all years.The depreciation table is as follows:

2013

2014

2015

Straight-Line Depreciation

$500

$500

$500

Accelerated Depreciation

$850

$450

$200

a. Fill out the excerpted income statements under US GAAP rulesand tax rules for the years 2013 and 2014. The income statementformat to complete is:

Income before depreciation

Depreciation

Income before tax

Income tax

b. Use the financial statement template to indicate the effectsof income taxes on the company’s financial statements. Assume thecompany pays cash for its taxes as they are due. (There will be twotransactions listed in the financial statement effects template:"Record tax expense for 2013" and "Record tax expense for2014.")

c. The footnote of the 2013 annual report of Farmer Co.disclosed a valuation allowance of $487 related to various deferredtax assets. The 2012 valuation allowance had a balance of $323.

Why did Farmer Co. report the valuation allowance?

Can the valuation allowance be manipulated by managers? Why?

2. (TCO B) The Accent Corporation shows thefollowinginformation.
On January 1, 2012, Accent purchased a donut machine for$900,000.
A) Pretax financial income is $2,000,000 in 2012 and $2,500,000 in2013.
B) Taxable income is expected in future years with an expected taxrate of 40%.
C) The company recognized an extraordinary gain of $250,000 in 2013(which is fully taxable).
D) Tax-exempt municipal bonds yielded interest of $50,000 in2013.
E) Straight-line basis for 8 years for financial reporting (SeeAppendix 11A.)
F) Half-year convention basis depreciation for 5 yearsfor tax purposes.
Required:
1) Computetaxable income and income taxes payable for 2013.
2) Prepare the journalentries for income tax expense, income taxes payable, and deferredtaxes for 2013.
3) Prepare the deferredincome taxes presentation for December 31, 2013 balance sheet.

6

(A) A machine that cost $96,000 on January 1, 2015 wasdepreciated by Ava Company using the double declining method. Themachine had a $8,600 residual value and a useful life of 5 Years.On January 1. 2017, the company switched to the straight linemethod.

What is the book value of the machine as of January 1,2017?________

(B) A machine that cost $96,000 on January 1, 2015 was depreciated byAva Company using the straight line method. The machine had noresidual value and a useful life of 8 Years. On January 1. 2017,the company switched to the sum of years’-digits method.

What is the depreciation expense for the year ended December 31,2017 $____