Liabilities – Deferred Tax

1. Triad Corporation reported a pretax financial income of P5,000,000 for the year ended
December 31, 2014. The following items are included in the determination of financial income:

Provision for litigation loss which will become tax deductible when settled in the furture,
P300,000; Realized revenue that has yet to be received P400,000; Other unearned revenue,
P150,000; Dividend received, P100,000.

If the income tax rate is 32% for all years, what amount of total tax expense and current tax
expenseshould Triad Company report, respectively?
a. P1,568,000 and P1,584,000 c. P1,600,000 and P1,568,000
b. P1,568,000 and P1,600,000 d. P1,600,000 and P1,568,000

2. Myriad Corporation computed a pretax financial income of P6,000,000 for the year ended
December 31, 2014. In preparing the tax return, the following differences are noted between
financial income and taxable income:

Nontaxable revenue, P600,000; Nondeductible expense, P200,000; Provision for warranty that
was recognized as expense in 2014 but deductible for tax when paid P300,000; Excess tax

m
depreciation over financial depteciation,P250,000; Excess of financial revenue over tax revenue,

er as
P200,000.

co
eH w
What is the total tax expense assuming the tax rate for 2014 is 32% and 2015 is 30%?

o.
a. P1,699,000 c. P1,789,000
rs e
b. P1,744,000 d. P1,792,000
ou urc

3. Taft Company leased a facility and received P600,000 annual rental payment on June 16,
2014. The beginning of the lease was July 1, 2014. Rental income is taxable when received. The
o

income tax rate is 32%. Taft had no other permanent or temporary differences. Taft determined
aC s

that no valuation is needed.

vi re

Question 1: Using the balance sheet liability method, what amount of deferred tax asset should
Taft report in its December 31, 2014 financial position?
y

a. P204,000 c. P96,000
ed d

b. P192,000 d. none
ar stu

Question 2: Using the income statement liability method, what amount of deferred tax asset
should Taft report in its December 31, 2014 financial position?
a. P204,000 c. P96,000
is

b. P192,000 d. none
Th

4. On October 1, 2014, Mania Corporation prepaid a P380,000 premium on an insurance policy.

The premium payment was a tax- deductible expense in Mania’s 2014 cash basis tax return. The
sh

accrual basis income statement will report a P95,000 insurance expense in 2014 and P285,000 in
2015. Assume the income tax rate is 32%.

Using the balance sheet liability method, in Mania’s December 31, 2014 financial position, what
amount related to the insurance should be reported as deferred assets?
a. none c. P91,200
b. P30,400 d. P121,600

5. At the beginning of 2016, Pitman Co. purchased an asset for P600,000 with an estimated
useful life of 5 years and an estimated residual value of P50,000. For financial reporting
purposes the asset is being depreciated using straight-line method; for tax purposes the double-

This study source was downloaded by 100000808893103 from CourseHero.com on 10-18-2021 00:58:43 GMT -05:00

https://www.coursehero.com/file/20898710/Liabilities-Deferred-tax/
 declining-balance method is being used. Pitman Co.’s tax rate is 40% for 2016 and all future
years.

Question 1: At the end of 2016, what is the book basis and tax basis of the asset?
Book basis Tax basis
a. P440,000 P310,000
b. P490,000 P310,000
c. P490,000 P360,000
d. P440,000 P360,000

Question 2: At the end of 2016, which of the following deferred tax accounts and balances is
reported on Pitman’s statement of financial position?
Account Balance
a. Deferred tax asset P52,000
b. Deferred tax liability P52,000
c. Deferred tax asset P78,000
d. Deferred tax liability P78,000

6. Eckert Corporation’s partial income statement after its first year of operations is as follows:

m
Income before income taxes P3,750,000

er as
Income tax expense

co
Current eH w P1,035,000
Deferred 90,000 1,125,000

o.
Net income P2,625,000
rs e
ou urc

Eckert uses the straight-line method of depreciation for financial reporting purposes and
accelerated depreciation for tax purposes. The amount charged to depreciation expense on its
books this year was P1,500,000. No other differences existed between book income and taxable
o

income except for the amount of depreciation. Assuming a 30% tax rate, what amount was
aC s

deducted for depreciation on the corporation’s tax return for the current year?
vi re

a. P1,200,000 c. P1,500,000
b. P1,425,000 d. P1,800,000
y

7. Michelle Company commenced operations on January 1, 2014. It purchased a machine for

ed d

P200,000. The machine is being depreciated on a straight-line basis over 5 years, for income tax
ar stu

purposes the machine qualifies for initial and annual allowances of 20% each. The company
capitalizes product development expenditure in the amount of P120,000 in accordance with PAS
38 Intangible assets, for income tax purposes, such expenditure is claimed in the year it is
incurred. For the tear ended December 31, 2014, the company made a profit before income of
is

P500,000. This profit was after deducting general al;lowance for bad debts of P50,000 and
Th

provision for warranties of P80,000. At year end, the balance in th gross trade receivable account
was P300,000. For income tax purposes, bad debts and warranty costs are claimed when incurred
or paid. Income tax rate is 32%.
sh

Question 1: What amount of Deferred tax asset should the company recognized on December 31,
2014?
a. none c. P41,600
b. P9,600 d. P51,200

Question 2: What amount of Deferred tax liability should the company recognized on December
31, 2014?
a. none c. P41,600
b. P9,600 d. P51,200

8. At December 31,2014 Raymond Corporation reported a deferred tax liability of P90,000

which was attributable to a taxable temporary difference of P300,000. The temporary difference

This study source was downloaded by 100000808893103 from CourseHero.com on 10-18-2021 00:58:43 GMT -05:00

https://www.coursehero.com/file/20898710/Liabilities-Deferred-tax/
 is scheduled to reverse in 2018. During 2015, a new tax law increased the corporate tax rate
from 30% to 40%. Raymond should record this change by debiting
a. Retained earnings for P9,000 c. Retained earnings for P30,000
b. Income tax expense for P9,000 d. Income tax expense for P30,000

9. Toner Company ha srevalued 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 P7,000,000. The tax rate is
32%.

What amount of deferred tax that should go directly to equity?

a. none c. P640,000
b. P320,000 d. P960,000

10. Titan Company issued a convertible bond on January 1, 2014, that matures in five years. The
bond can be converted into ordinary shares at any time. Titan has calculated that the liability and
the equity components of the bond are P3,000,000 for the liability component and P1,000,000 for
the equity component, giving a total amount of the bond of P4,000,000. The interest rate of the
bond is 6% and local tax legislation allows a tax deduction for the interest paid in cash. What
amount of deferred tax should be reported in the profit or loss at the time the bonds were issued?

m
(Tax rate is 32%)

er as
a. none c. P960,000

co
b. P320,000 eH w d. P1,200,000

o.
rs e
ou urc
o
aC s
vi re
y
ed d
ar stu
is
Th
sh

This study source was downloaded by 100000808893103 from CourseHero.com on 10-18-2021 00:58:43 GMT -05:00

https://www.coursehero.com/file/20898710/Liabilities-Deferred-tax/

Powered by TCPDF (www.tcpdf.org)