Problem 78

1. Compute TCFs current income tax expense or benefit for 2013

Income before income taxes
Interest from municipal bonds
Nondeductible stock compensation
DPAD
Nondeductible fines
Book equivalent of taxable income

Net change in cumulative TTD

Net change in cumulative DTD
Net change cumulative TD
Taxable income
x 34%
Current tax expense

4,525,000
(10,000)
5,000
(8,000)
1,000
4,513,000
(500,000)
140,000
(360,000)

$
$

4,153,000
0.34
1,412,020

2. Compute TCF's deferred income tax expense or benefit for 2013

Ending balance in TTD
Beginning balance in TTD
Increase in deferred tax liability

Ending balance in DTD

Beginning balance in TTD
Increase in deferred tax asset

Deferred tax expense

Deferred tax benefit
Net deferred tax expense

Tax provision
Current income tax expense
Deferred income tax expense
Total income tax provision

$
$

(1,870,000)
(1,700,000)
(170,000)
268,800
221,000
47,800
170,000
(47,800)
122,200

1,412,020
122,200
1,534,220

Check
Book equivalent of taxable income
x 34%
Total income tax provision

$
$

4,513,000
0.34
1,534,420

3. Prepare a reconciliation of TCF's total income tax provision with its hypothetical income tax expense
Reconciliation of Effective Tax Rate
Provision at 34% [$4,525,000 x 34%]
$
Tax exempt interest ($10,000 x 34%)
Nondeductible stock compensation ($5,000
DPAD ($8,000 x 34%)
Nondeductible fines ($1,000 x 34%)
Provision
$

Dollars
1,538,500
(3,400)
1,700
(2,720)
340
1,534,420

Percent
34.00%
-0.08%
0.04%
-0.06%
0.01%
33.91%

[$1,538,500/ $4,525,000]
[$3,400 / $4,525,000]
[$1,700 / $4,525,000]
[$2,720 / $4,525,000]
[$340 / $4,525,000]

All these number were cha

All these number were changed

4. Assume TCFs tax rate increased to 35% in 2013.

Recompute TCFs deferred income tax expense or benefit for 2013 using the following template:

Changed the year to 2013.

Tulip City Flowers, Inc.

Temporary Difference Scheduling Template
BOY

Beginning

Current

EOY

Ending

Taxable (Favorable)

Cumulative

Deferred

Year

Cumulative

Deferred

Temporary Differences

T/D

Taxes (@ 34%)

Change

T/D

Taxes (@ 35%)

Non-current
Accumulated depreciation

(5,000,000)

(1,700,000)

(500,000)

(5,500,000)

(1,925,000)

BOY

Beginning

Current

EOY

Ending

Deductible (Unfavorable)

Cumulative

Deferred

Year

Cumulative

Deferred

Temporary Differences

T/D

Taxes (@ 34%)

Change

T/D

Taxes (@ 35%)

Current
Allowance for bad debts
Prepaid income
Total current

100,000

34,000

10,000

110,000

38,500

20,000

20,000

7,000

100,000

34,000

30,000

130,000

45,500

50,000

17,000

10,000

60,000

21,000

500,000

170,000

100,000

600,000

210,000

550,000

187,000

110,000

660,000

231,000

650,000

221,000

140,000

790,000

276,500

Non-Current
Deferred compensation
Accrued pension liabilities
Total non-current
Total

Ending balance in TTD

Beginning balance in TTD
Increase in deferred tax liability (expense)

Ending balance in DTD

Beginning balance in TTD
Increase in deferred tax asset (benefit)

(1,925,000)
(1,700,000)
(225,000)
276,500
221,000
55,500

Deferred tax expense

Deferred tax benefit
Net deferred tax expense

$
$

225,000
(55,500)
169,500

Recompute TCFs current income tax expense or benefit for 2012

Income before income taxes
Interest from municipal bonds
Nondeductible stock compensation
DPAD
Nondeductible fines
Book equivalent of taxable income

Net change in cumulative TTD

Net change in cumulative DTD
Net change cumulative TD
Taxable income
x 35%
Current tax expense
Tax provision
Current income tax expense
Deferred income tax expense
Total income tax provision
Check
Book equivalent of taxable income
x 35%
Total income tax provision

4,525,000
(10,000)
5,000
(8,000)
1,000
4,513,000
(500,000)
140,000
(360,000)

$
$

$
$

$
$

4,153,000
0.35
1,453,550

1,453,550
169,500
1,623,050

4,513,000
0.35
1,579,550

The check procedure no longer works because the tax rate changed from the beginning to the end of the year.
The difference of $43,500 ($1,623,050 - $1,579,550) results from tax effecting the net cummulative book differences at the beginning of
of year ($4,350,000) times the change in tax rate (1%).

Changed the year to 2013.