Objective
This case study will allow students to apply the concepts covered in Weeks 1 and 2. The assignment will assess the skills of the student in computing, recording and reporting deferred taxes, and measuring and recording pension expense.
- Read the scenario below
- Complete requirements 1 to 7 for Case Study Part A and requirements 1 and 2 for Case Study Part B in Excel.
- Please submit your solution to the case as a Voice Thread with at least a 2-minute narration summarizing your findings.
- Do not make it available to the class.
Instructions for Creating Voice Thread are available on the course navigation menu under Voice Thread.
Case Study Part A Scenario
SuperSports Inc.reported pretax financial income of $260,000 for the year 2016. Taxable income of SuperSports is however different from its pretax financial income because of the items given below.
- Depreciation deducted on the tax return is $40,000 greater than the depreciation charged on Income Statement.
- Estimated Warranties Expenses charged to Income Statement is $30,000 but Warranties expenses deductible on tax return are $20,000
- $3,200 appear in the income statement of SuperSports as Fines and penalties paid.
- SuperSports received $ 6,000 interest from Tax Saving Municipal Bonds.
Enacted Tax Rate for the year 2016 is 30% and for 2017 is 35%
Required: For the year 2016, SuperSports Inc. requests you to:
- Identify items of permanent and temporary difference from the information given
- What items of temporary difference result in future taxable amounts and what items will result in future deductible amounts
- Compute Taxable Income
- Compute current income tax expense/Tax payable
- Compute deferred taxes ( Deferred Tax Liability and Deferred Tax Asset)
- Record journal entry for Income Tax Expense
- Show how deferred taxes will be reported in the Balance Sheet.
Case Study Part B
SuperSports provides you the following pension data for the year 2016.
Item Service Cost, 2016$248,000Projected Benefit Obligation, January 2016$340,000Plan assets (fair value), Januray 1, 2016$360,000Prior Service Cost – AOCI (2016 amoritization, $25,000)$250,000Net Loss – AOCI (2016 amoritization, $10,000)$110,000Actual Return on Plan Assets$45,000Interest rate and expected return on plan assets10%Contributions made to plan assets during 2016$175,000
SuperSports requests you to:
- Compute pension expense for the year 2016
- Record 2016 journal entry for pension expense
