ACCT CAPSTONE - DTA AND DTL || WITH 100%
ERROR-FREE SOLUTIONS.
Shortly before the end of 2016, Colter Company makes an installment sale that generates $400 of
before-tax income. Colter recognizes income for accounting purposes when the sale is made, but
will recognize income for tax purposes when cash is subsequently collected in 2017. Colter has a
tax rate of 40%. As a result of this transaction, Colter's tax expense journal entry would include
a:
a. Debit to Deferred tax liability for $400.
b. Credit to Deferred tax liability for $400.
c. Debit to Deferred tax liability for $160.
d. Credit to Deferred tax liability for $160. correct answers D (400 x 40%)
Windsor Company started 2016 with a deferred tax liability of $150. As of the end of the period,
Windsor identifies future taxable amounts of $500. Windsor has a tax rate of 40%, and calculates
that taxes payable will be $120. Windsor's tax expense journal entry will include a:
a. Debit to Tax expense for $200.
b. Debit to Tax expense for $170.
c. Debit to Tax expense for $50.
d. Credit to Tax for $30. correct answers B
(work backwards! draw t chart. 150 on the right side bc its a liab. you need to get it to 200
because 500 x 40%.... therefore the dtl will be 50. then to find tax expense je is dr. tax expense to
balance and given is 120 tax pay which is also a credit....)
Rikart Real Estate has a $2,000,000 installment accounts receivable. Rikart recognizes income
for tax purposes when cash is collected, and pays tax at a rate of 35%. Rikart's balance sheet
should include a deferred tax liability of:
a. $2,000,000.
b. $700,000.
c. $0.
d. Insufficient information to answer. correct answers b
All of the following temporary diffs create DTLs except for?
A. Rent collected in advance
B. Unrealized gain from recording investment at fair value
C. prepaid expenses (tax ded when paid)
D. installment sales of prop correct answers A (rent is reported on the tax return now but in the
income statement later...this means that tax laws will req that the comp wait until future period to
take deduction)
All of the following are DTA's except for...
A. Revenue collected in advance
, B. Estimated expenses and losses
C. Unrealized gain from recording investments at fair value
D. Unrealized loss from recording investments at fair value correct answers C
Western Mountain Sports started 2016 having recognized $5,000,000 more depreciation for tax
purposes than for accounting purposes since the company began. It ended 2016 having
recognized $4,000,000 more depreciation for tax purposes than for accounting purposes since the
company began. Assume a tax rate of 40%. With respect to depreciation, Western's tax expense
journal entry for 2016 would include a:
a. Debit to Deferred tax liability for $400,000.
b. Credit to Deferred tax liability for $400,000.
c. Debit to Deferred tax liability for $1,600,000.
d. Credit to Deferred tax liability for $1,600,000. correct answers A (do chart....5M x 40% = 2M
and needs to get to 1.6 M)
Duchess Company started the period with a deferred tax asset of $400. As of the end of the
period, Duchess identifies future deductible amounts of $700. Duchess has a tax rate of 40%, and
calculates that taxes payable will be $200. Duchess's tax expense journal entry would include a.
a. Debit to Tax expense of $280.
b. Credit to Tax expense of $120.
c. Debit to Tax expense of $320.
d. Credit to Tax expense of $320. correct answers C (dta is on the right because u need to get
from 400 to 280)
NewsMonth has $10,000,000 of Deferred revenue - subscriptions. NewsMonth recognizes
income for tax purposes when cash is collected, and pays tax at a rate of 35%. NewsMonth's
balance sheet should include
a:
a. Deferred tax asset of $3,500,000.
b. Deferred tax asset of $6,500,000.
c. Deferred tax liability of $3,500,000
d. Deferred tax liability of $6,500,000 correct answers a
As of the end of 2016, Elliott had a deferred tax asset of $100,000 and believed it was not more
likely than not that it could realize any of the tax deductions associated with the deferred tax
asset.
As of the end of 2017, Elliott needed to show a deferred tax asset of $150,000, and believed it
was more likely than not that it would realize $20,000 of that deferred tax asset. Assuming tax
payable of $300,000 and no deferred tax liabilities, Elliott's 2017 tax expense journal entry
includes a:
a. Debit to Tax expense for $330,000.
b. Debit to Tax expense for $280,000.
