GMP 5060 HW Assignment 8 – Deferred Taxes

HW Assignment 8 – Deferred TaxesYou MUST show all work in order to receive credit for the problems.Problem 1Work Inc. has the following information:1. An asset in the amount of $500,000 was purchased on January 1, 2013. For taxpurposes, it is a 5 year asset and they use the half year convention. For financialreporting they use the straight-line method of depreciation and are depreciating itover 8 years. Below is the depreciation expenses by year:20132014201520162017201820192020TotalsBookDepreciation$62,50062,50062,50062,50062,50062,50062,50062,500$500,000TaxDepreciation$ 50,000100,000100,000100,000100,00050,00000$500,000Difference$12,500-37,500-37,500-37,500-37,50012,50062,50062,500$02. Pretax financial accounting income for 2013 was $1,250,000 and for 2014 it was$945,000.3. In 2014, they earned tax-exempt interest of $110,000.4. Their tax rate is 30% for 2013 and all future years.Required:Prepare the journal entries for 2013 and 2014 to record income tax expense.Problem 2Cisco Inc. had a pretax accounting loss of $55 million in 2014. The enacted taxrate is 40% for 2014. There are no differences between the financial accountingincome and taxable income.The following is Cisco’s taxable income for the five previous years:Year20092010201120122013Income$20$50$25$40$25Rate35% tax rate35% tax rate35% tax rate35% tax rate40% tax rateRequired:1. Prepare the journal entry on 12/31/14 to record the income tax benefit of theloss, assuming they elect the 2 year carry back.2. Prepare the journal entry on 12/31/14 to record the income tax benefit of theloss, assuming they elect the carry-forward option.