Case 16-5, 24, 25 – william-santana, depaul corporation

Case 16-5 Tax Effects of accounting changes and error correction; six situations
William-Santana, Inc. is a manufacturer of high-tech industrial parts that was started in 1997 by two talented engineers with little business training. In 2011, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2011 before any adjusting entries or closing entries were prepared. The income tax rate is 40% for all years.
a. A five-year casualty insurance policy was purchased at the beginning of 209 for 35,000. The full amount was debited to insurance expense at the time.
b. On December 31, 2010, merchandise inventory was overstated by 25,000 due to a mistake in the physical inventory count using the periodic inventory system.
c. The company changed inventory cost methods to FIFO from LIFO at the end of 2011 for both financial statement and income tax purposes. The change will cause a 960,000 increase in the beginning inventory at January 1, 2010.
d. At the end of 2010, the company failed to accrue 15,500 of sales commissions earned by employees during 2010. The expense was recorded when the commissions were paid in early 2011.
e. At the beginning of 2009, the company purchased a machine at a cost of 720,000. Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double-declining balance method. Its carrying amount on December 31, 2010, was 460,800. On January 1, 2011, the company changed to the straight-line method.
f. Additional industrial robots were acquired at the beginning of 2008 and added to the company’s assembly process. The 1,000,000 cost of the equipment was inadvertently recorded as repair expense. Robots have 10-year useful lives and no material salvage value. The class of equipment is depreciated by the straight-line method for both financial reporting and income tax reporting.

Required:
For each situation
1. Identify whether it represents an accounting change or an error. If an accounting changes, identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2011 related to the situation described. Any tax effects should be adjusted for through the deferred tax liability account.
3. Briefly describe any other steps that should be taken to appropriately report the situation.

 

E 16-24 Balance sheet classification
At December 31, DePaul Corporation had a 16 million balance in its deferred tax asset account and a 68 million balance in its deferred tax liability account. The balances were due to the following cumulative temporary differences:
1. Estimated warranty expense, 15 million: expense recorded in the year of the sale; tax-deductible when paid (one year warranty).
2. Depreciation expense, 120 million: straight –line in the income statement; MACRS on the tax return.
3. Income from installment sales of properties, 50 million: income recorded in the year of the sale; taxable when received equally over the next five years.
4. Bad debt expense, 25 million: allowance method for accounting; direct write-off for tax purposes.
Required:
Show how any deferred tax amounts should be classifies and reported in the December 31 balance sheet. The tax rate is 40%.

E 16-25 multiple tax rates; balance sheet classification
Case Development began operations in December 2011. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2011 installment income was 600,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2012-2014 are as follows:
2012 $150,000 30%
2013 250,000 40
2014 200,000 40
Pretax accounting income for 2011 was 810,000, which includes interest revenue of 10,000 from municipal bonds. The enacted tax rate for 2011 is 30%.
Required:
1. Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Case’s 2011 income taxes.
2. What is Case’s 2011 net income?
3. How should the deferred tax amount be classified in a classified balance sheet?







Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Enjoy 10% OFF today with the coupon code: best10