1) On January 1, 2011 ACME Company purchased a building
for $45million. ACME depreciates the building using straight line for financial
accounting and uses MACRS for its tax return. On December 31, 2014 ACME’s
building had a book value of $36 million and a tax basis of $20million. On
December 31, 2015 ACME’s building had a book value of $33million and a tax
basis of $16million. ACME has no other temporary or permanent differences, and
is in a 30% tax bracket. In 2015, ACME shows income before income taxes of $7million.
Make the journal entry ACME makes for income
taxes
What is ACME’s income after taxes.
2) On January 1, 2014 AJAX Company signed a
lease to rent a store in the new mall for the next 5 years. Under the terms of
this lease, AJAX had to pay $10 million immediately (January 1, 2014) and $2
million each year (for a total of $20 million in payments) For tax purposes,
the $10 million can be deducted immediately while for GAAP it must be amortized
over the 5 years. This is the only difference between AJAX’s book and tax
income. Before rent expense and income tax, AJAX had the following income
amounts each year: 2014 $23 million 2015 $33 million 2016 $44 million 2017 $33
million 2018 $33 million.
a) Determine: income tax expense, income tax
payable, deferred tax asset at the end of 2014 if the tax rate is 30%
b) determine: income tax expense, income tax
payable, deferred tax asset at the end of 2015 if the tax rate is still 30%
c) In 2016, Congress passed a new tax law
which will cause AJAX’s tax rate to be 20% beginning in 2017, but remain 30% in
2016. Determine income tax expense, income tax payable and deferred tax asset
at the end of 2016.
3_ On January 1st 2014 Yoda Company’s
projected pension benefit obligation was $50 million. During 2014 pension benefits
paid by the trustee were $5 million. Service cost for 2014 was $12 million and
pension plan assets increased by $7 million as expected. At the end of 2014
there was no prior service cost, and the actuary discount rate was 10% .
DETERMINE THE AMOUNT OF PROJECTED PENSION
OBLIGATION ON DECEMBER 31, 2014.
4) The Froto Company began business on
January 1, 2010 by issuing 1 million shares of $1 par common stock and 10,000
shares of $100 par 6% cumulative preferred stock. Because of tough economic
times, Froto did not pay any dividends in 2010, 2011 or 2012 and paid a $80,000
dividend in 2013. It is now 2014 and Froto is declaring and paying a $400,000
dividend.
DETERMINE THE AMOUNT OF THE $400,000 THAT THE
PREFERRED STOCKHOLDER’S RECEIVE.
