Hwi6: Accounting For Income Taxes

HWI6: Accounting for Income TaxesCompany accounting policies: 1. Mr. Speakers rounds all transactions to the nearest dollar. 2. All depreciation and intangible asset amortization is taken as one full year in the initialyear of service for GAAP financial accounting purposes. 3. FIFO inventory method. 1) On January 2nd, 2017, Mr. Speakers paid its outstanding dividends payable. Record thejournal entry. 2) On March 1st, 2017, Mr. Speakers paid its remaining operating lease payments for 2017in advance (remember, there are two operating leases, prepare one journal entry for theprepayment of both leases). 3) On March 1, 2017, Mr. Speakers retired the bonds issued 3/1/2016 for 91. 5. Prepare allnecessary journal entries. 4) Recognize lease expense for the year as of 12/31/2017 (see #2 above). 5) On 4/1, 4/30, 7/1, 7/31, 10/1, and 10/31, Mr. Speakers made the required interestpayments on their remaining bonds payable. Make the required journal entries. Additionally, make the necessary 12/31/17 entry for bonds. 6) On 4/15/2017, Mr. Speakers received the remaining $250 from the customer who hadmade a deposit on a pair of MRSP2 headphones. 7) On 4/30/2017, Mr. Speakers paid off its outstanding accounts payable. 8) Between 5/1/2017 and 12/31/2017 produced 200 MRSP1s, 400 MRSP2s, 200 Soft Cases,275 Hard Cases, 575 Comfort Bands, and 195 Custom Cables, all at standard cost. Makeone summary journal entry for the transaction 12/31/2017. 80 of the production costswere on account, the other 20 were paid in cash. 9) Between 5/1/2017 and 12/31/2017, Mr. Speakers sold and delivered 60 of the inventoryproduced in #8 to consumers for standard retail prices, for cash. Prepare one journal entrydated 12/31/2017. 10) Between 5/1/2017 and 12/31/2017, Mr. Speakers sold and delivered the other 40 of theinventory produced in #8 to audio dealers for 90 of standard retail prices. Half of thesales were paid in cash, the other half were on account. Prepare one journal entry dated12/31/2017. 11) On Friday, 3/3/2017, Mr. Speakers paid all five owners their salary for the week. 12) Saturday, 3/4/2017, during a meeting of the shareholders, the owners of Mr. Speakersvoted to double their salaries to $1,000 per person per week. There were 43 weeksremaining in the year at that date. Record the payment of salaries for the rest of the yearusing one summary journal entry on the final pay day of the year. Remember to accruesalaries through the end of the year if necessary. 13) At the end of the year, Mr. Speakers estimates that 2 of accounts receivable will beuncollectible. No accounts were written off during the year. The direct write-off methodis the only acceptable method for income taxes. a. Prepare the journal entry to record the allowance for doubtful accounts as of12/31/2017. b. Is this a temporary or permanent book tax difference?c. If it is temporary, does it create a DTL or DTA? Current or Non-Current?14) At 12/31/2017, Mr. Speakers needs to record $36,017 of depreciation expense ($8,000 forgeneral equipment, $1,350 for the SR1, $10,000 for the first building, and $16,667 for theleased retail space). However, depreciation expense for tax purposes is $39,213. a. Prepare the journal entry to record depreciation as of 12/31/2017. b. Is this a temporary or permanent book tax difference?c. If it is temporary, does it create a DTL or DTA? Current or Non-Current?15) Warranty expenses are only tax deductible when they are actually incurred (when acustomer actually returns an item to be repaired/replaced). None of Mr. Speakersheadphones were returned under warranty during the year. a. Is this a temporary or permanent book tax difference?b. If it is temporary, does it create a DTL or DTA? Current or Non-Current?16) Mr. Speaker’s COGS for tax purposes was $365,000 for 2017. For book purposes, COGSwas $344,150. This difference will reverse in the following year. a. Is this a temporary or permanent book tax difference?b. If it is temporary, does it create a DTL or DTA? Current or Non-Current?17) Finally, on December 1, 2017, Mr. Speakers paid $12,000 for officers’ life insurance. Thisinsurance premium was for six months of coverage. The cost of officers’ life insurance isnever tax deductible. a. Prepare ALL the journal entries for this transaction through 12/31/2017. b. Is this a temporary or permanent book tax difference?c. If it is temporary, does it create a DTL or DTA? Current or Non-Current?18) Remember from your prior homework that Mr. Speakers recorded a $25,000 contingentliability. This is not deductible for tax purposes until it is actually paid. The contingentliability is a current liability. a. Is this a temporary or permanent book tax difference?b. If it is temporary, does it create a DTL or DTA? Current or Non-Current?19) Assume that Mr. Speakers has a 40 income tax rate for 2017. The beginning balance inall DTA and DTL accounts is 0. ASSUME pretax financial income is $25,000. Preparethe journal entry to record income tax expense.

HWI6: Accounting for Income Taxes

Question
HWI6: Accounting for Income Taxes
Company accounting policies:
1. Mr.Speakers rounds all transactions to the nearest dollar.
2. All depreciation and intangible asset amortization is taken as one full year in the initial
year of service for GAAP financial accounting purposes.
3. FIFO inventory method.

1) On January 2nd, 2017, Mr.Speakers paid its outstanding dividends payable. Record the
journal entry.
2) On March 1st, 2017, Mr. Speakers paid its remaining operating lease payments for 2017
in advance (remember, there are two operating leases, prepare one journal entry for the
prepayment of both leases).
3) On March 1, 2017, Mr.Speakers retired the bonds issued 3/1/2016 for 91.5. Prepare all
necessary journal entries.
4) Recognize lease expense for the year as of 12/31/2017 (see #2 above).
5) On 4/1, 4/30, 7/1, 7/31, 10/1, and 10/31, Mr.Speakers made the required interest
payments on their remaining bonds payable. Make the required journal entries.
Additionally, make the necessary 12/31/17 entry for bonds.
6) On 4/15/2017, Mr.Speakers received the remaining $250 from the customer who had
made a deposit on a pair of MRSP2 headphones.
7) On 4/30/2017, Mr.Speakers paid off its outstanding accounts payable.
8) Between 5/1/2017 and 12/31/2017 produced 200 MRSP1s, 400 MRSP2s, 200 Soft Cases,
275 Hard Cases, 575 Comfort Bands, and 195 Custom Cables, all at standard cost. Make
one summary journal entry for the transaction 12/31/2017. 80% of the production costs
were on account, the other 20% were paid in cash.
9) Between 5/1/2017 and 12/31/2017, Mr.Speakers sold and delivered 60% of the inventory
produced in #8 to consumers for standard retail prices, for cash. Prepare one journal entry
dated 12/31/2017.
10) Between 5/1/2017 and 12/31/2017, Mr.Speakers sold and delivered the other 40% of the
inventory produced in #8 to audio dealers for 90% of standard retail prices. Half of the
sales were paid in cash, the other half were on account. Prepare one journal entry dated
12/31/2017.

11) On Friday, 3/3/2017, Mr.Speakers paid all five owners their salary for the week.
12) Saturday, 3/4/2017, during a meeting of the shareholders, the owners of Mr.Speakers
voted to double their salaries to $1,000 per person per week. There were 43 weeks
remaining in the year at that date. Record the payment of salaries for the rest of the year
using one summary journal entry on the final pay day of the year. Remember to accrue
salaries through the end of the year if necessary.
13) At the end of the year, Mr.Speakers estimates that 2% of accounts receivable will be
uncollectible. No accounts were written off during the year. The direct write-off method
is the only acceptable method for income taxes.
a. Prepare the journal entry to record the allowance for doubtful accounts as of
12/31/2017.
b. Is this a temporary or permanent book tax difference?
c. If it is temporary, does it create a DTL or DTA? Current or Non-Current?
14) At 12/31/2017, Mr.Speakers needs to record $36,017 of depreciation expense ($8,000 for
general equipment, $1,350 for the SR1, $10,000 for the first building, and $16,667 for the
leased retail space). However, depreciation expense for tax purposes is $39,213.
a. Prepare the journal entry to record depreciation as of 12/31/2017.
b. Is this a temporary or permanent book tax difference?
c. If it is temporary, does it create a DTL or DTA? Current or Non-Current?
15) Warranty expenses are only tax deductible when they are actually incurred (when a
customer actually returns an item to be repaired/replaced). None of Mr.Speakers
headphones were returned under warranty during the year.
a. Is this a temporary or permanent book tax difference?
b. If it is temporary, does it create a DTL or DTA? Current or Non-Current?
16) Mr.Speaker’s COGS for tax purposes was $365,000 for 2017. For book purposes, COGS
was $344,150. This difference will reverse in the following year.
a. Is this a temporary or permanent book tax difference?
b. If it is temporary, does it create a DTL or DTA? Current or Non-Current?

17) Finally, on December 1, 2017, Mr.Speakers paid $12,000 for officers’ life insurance. This
insurance premium was for six months of coverage. The cost of officers’ life insurance is
never tax deductible.
a. Prepare ALL the journal entries for this transaction through 12/31/2017.
b. Is this a temporary or permanent book tax difference?
c. If it is temporary, does it create a DTL or DTA? Current or Non-Current?
18) Remember from your prior homework that Mr.Speakers recorded a $25,000 contingent
liability. This is not deductible for tax purposes until it is actually paid. The contingent
liability is a current liability.
a. Is this a temporary or permanent book tax difference?
b. If it is temporary, does it create a DTL or DTA? Current or Non-Current?
19) Assume that Mr.Speakers has a 40% income tax rate for 2017. The beginning balance in

all DTA and DTL accounts is 0. ASSUME pretax financial income is $25,000. Prepare
the journal entry to record income tax expense.