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Final

UGBA 120AB Lecture Notes - Lecture 2: Deferred Tax, Preferred Stock, Expected ReturnExam


Department
Business Administration, Undergraduate
Course Code
UGBA 120AB
Professor
Stanton
Study Guide
Final

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Kousha Modanlou
UGBA 120AB
July 1, 2019
Professor Stanton
Chapter 16-19 Homework Packet
Kousha Modanlou
UGBA 120AB
June 21, 2019
Professor Stanton
Chapter 16 Homework: E16-11, E16-15, E16-19, E16-22
E16-11
Requirement 1
($ in millons)
Current year 2018 Future Deductibe Amts
Temporary Difference
: (70)
Taxable Income $180
Enacted tax rate 40% 40%
Tax payable currently $72
Deferred Tax Asset ($28)
Deferred Tax Asset:
Ending balance (balance currently needed): $28
Less: beginning balance ($75 x 40%) ($30)
Change needed to achieve desired balance ($2)
Journal entries at the end of 2018:
Income Tax Txpense $74
Deferred Tax Asset $2
Income Tax Payable $72
Valuation Allowance-- Deferred Tax Asset $10
Income Tax Expense $10

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It’s more likely than not that the deferred tax asset will be realized so there’s no need for a
valuation allowance and the account is removed.
Combined Journal Entry:
Income Tax Expense $64
Valuation Allowance--Deferred Tax Asset $10
Deferred Tax Asset $2
Income Tax Payable $72
Requirement 2
($ in millions)
Income Tax Expense $74
Deferred Tax Asset $2
Income Tax Payable $72
Valuation Allowance:
Ending balance (balance currently needed): $21
Less: beginning balance ($10)
Change needed to achieve desired balance $11
Income tax expense $11
Valuation allowance--Deferred Tax Asset $11
([¾ x $28]- $10)
Three-fourths of the deferred tax asset will not be realized because one-fourth of the deferred tax
asset will be realized. The adjusting entry includes the amount necessary to achieve the required
balance because there is already a balance in the valuation at the beginning of the year.
Combined Journal Entry:
Income tax expense $85
Deferred Tax Asset $2
Income Tax Payable $72
Valuation Allowance- Deferred Tax Asset $11
E16-15
Requirement 1

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($ in millions)
Current Yr Future Deductible Amts Total
2018 2019 2020 2021 2022
Pretax accounting income $14
Temporary Difference
Warranty Expense $6 ($2) ($1) ($1) ($2)
Taxable income (tax return) $20
Enacted tax rate 35% 30% 30% 30% 25%
Tax payable currently $7
Deferred Tax Asset ($0.6) ($0.3) ($0.3) ($0.5) ($1.7)
Deferred Tax Asset:
Ending balance $1.7
Less: beginning balance (0)
Change needed to achieve desired balance $1.7
Journal Entry at the end of 2018:
Income tax expense $5.3
Deferred Tax Asset $1.7
Income Tax Payable $7.0
Requirement 2
($ in millions)
Pretax Income $14.0
Income Tax Expense ($5.3)
Net Income $8.7
E16-19
Requirement 1
($ in millions)
Income tax expense $80
Deferred Tax Asset ($25 million x 40%) $10
Deferred Tax Liability ($80 million x 40%) $32
Income Tax Payable ($145 million x 40%) $58
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