Part A
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:
- 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.
Part B
SuperSports provides you the following pension data for the year 2016.
Service Cost, 2016 $248,000
Projected Benefit Obligation, January 2016 $340,000
Plan assets (fair value), Januray 1, 2016 $360,000
Prior Service Cost – AOCI (2016 amortization, $25,000) $250,000
Net Loss – AOCI (2016 amortization, $10,000) $110,000
Actual Return on Plan Assets $45,000
Interest rate and expected return on plan assets 10%
Contributions made to plan assets during 2016 $175,000
Required:
- Compute pension expense for the year 2016
- Record 2016 journal entry for pension expense
