60.1K

Verified Solution

Link Copied!

image

1. Brock Corp.'s 2013 income statement had pretax financial income of $250,000 in its first year of operations. Brock uses an accelerated cost recovery method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions for depreciation over the five-year life of the assets acquired in 2013, and the enacted tax rates for 2013 to 2017 are as follows: 2013 2014 2015 2016 2017 Book Over (UndenTax $(50,000) (65,000) (15,000) Tax Rates 35% 3096 30% 30% 30% 60,000 70,000 There are no other temporary differences. The following journal entry was required to support the above data (DTL is net of tax rate changes): Dr 85,000 Cr Income Tax Expense Income Tax Payable DTL 70,000 15,000 (a) Create a schedule/chart which depicts the generation/reversal of the annual timing differences. (13 points (b) Create a T-account for the deferred tax liability to support the calculation of the JE shown above. (13 points) On January 1, 2014, American Corporation purchased 30% of the outstanding voting shares of Short Supplies common stock for $300,000 cash. The investment is classified as Trading. On that date, Short Supplies book value and fair value were equal, and it is assumed the market value is equal to the net book value. American elected to use the fair value option for accounting for its investment. As of 12/31/14 the net book value of Short Supplies was $1,200,000, During 2014 Short Supplies issued total dividends of $80,000. 2. Required: (a) Prepare the three jourmal entries necessary to record the above information on American Corporation's books during 2014 and 2015. (18 points) (b) What is the carrying value of the Investment in Short Supplies as of 12/31/14? (8 points)

Answer & Explanation Solved by verified expert

See Answer