INCOME STATEMENT METHOD

Use the following information for the next two (2) questions:
The accounting profit before tax for the year ended December 31, 2020 for Regiel Ltd amounted to P18,500 and included:

Depreciation – motor vehicle (25%) P 4,500

Depreciation - equipment (20%) 20,000
Rent revenue 16,000
Royalty revenue (exempt from tax) 5,000
Doubtful debts expense 2,300
Entertainment expense (non-deductible) 1,500
Proceeds on sale of equipment 19,000
Carrying amount of equipment sold 18,000
Annual leave expense 5,000

The draft statement of financial position at December 31, 2020 contained the following assets and liabilities:

2020 2019
Assets
Cash P 11,500 P 9,500
Receivables 12,000 14,000
Allowance for doubtful debts (3,000) (2,500)
Inventory 19,000 21,500
Rent receivable 2,800 2,400
Motor vehicle 18,000 18,000
Acc. Dep. - motor vehicle (15,750) (11,250)
Equipment 100,000 130,000
Acc. Dep. - equipment (60,000) (52,000)
Deferred tax asset ? 5,550
P135,200
Liabilities
Accounts payable 15,655 21,500
Provision for annual leave 4,500 6,000
Current tax liability ? 7,600
Deferred tax liability ? 2,745
37,845

Additional information
 The company can claim a deduction of P15,000 (15%) for depreciation on equipment, but the motor vehicle is fully
depreciated for tax purposes.
 The equipment sold during the year had been purchased for P30,000 two years before the date of sale.
 The company tax rate is 30%.
1) The current tax expense for 2020 is
A. 6,030 B. 6,930 C. 7,500 D. 8,040
2) The deferred tax expense (benefit) for 2020 is
A. 6,570 B. 3,270 C. 2,430 D. 1,080

3) The Waloneke Company has a policy of using non-current assets until they can no longer be operated and are worthless.
On 1 January 2020 it acquired an item of plant and machinery for P100,000. It is being depreciated over 10 years on a
straight-line basis. For tax purposes there is an allowance of 20% per annum on a reducing balance basis. There are two
rates of tax: 15% on trading profits and 25% on gains on disposals.
What deferred tax balance should Waloneke recognize at 31 December 2020, according to PAS12 – Income taxes?
A. DTA 2,500 B. DTA 1,500 C. DTL 2,500 D. DTL 1,500

1) Cebu Fantastic Company would like to know the amount of its pretax financial income for the current year by taking
adjustments to taxable income as per company's income tax return. The tax return shows a taxable income of
P5,000,000, with tax payable of P1,750,000 has been reported. The following are adjustments to the amount of taxable
income:

Straight-line depreciation on these assets is P800,000 and accelerated depreciation for income tax purposes was
P1,000,000. Goodwill impairment loss of P500,000 may be deducted in the income statement but was not included as a
 deduction in the tax return. During the year, P800,000 was received on interest on treasury bills that were not included
in the income tax return. Cebu Fantastic 's financial income subject to tax for the year should amount to:
A. 4,700,000 B. 5,100,000 C. 5,500,000 D. 5,200,000

1) AAA Co. reported current tax expense of P5,000,000 for 2020. The changes in assets and liabilities are as follows:
12/31/20 12/31/19
Deferred tax asset P 1,000,000 P 800,000
Deferred tax liability 450,000 600,000
Income tax payable 500,000 200,000
The deferred tax liability was caused by accelerated depreciation and the deferred tax asset is for rentals received in
advance. What amount of total tax expense should be recognized in 2020?
A. 4,650,000 B. 4,950,000 C. 5,350,000 D. 5,650,000

2) On January 1, 2024, AAA Company purchased a P600,000 machine, with a five-year useful life and no residual value.
The machine was depreciated by an accelerated method for book and tax purposes. The carrying amount was
P240,000 on December 31, 2025. On January 1, 2026, the entity changed to the straight-line method for financial
reporting purposes. The income tax rate is 30%. On January 1, 2026, what amount should be reported as deferred tax
liability as a result of the change?
A. Zero B. 36,000 C. 72,000 D. 120,000

2) Maginoo Corporation had very risky business operations that started on January 1, 2012. On July 1, 2012, the
Company decided to pay in advance premiums on annual insurance policy for fixed assets amounting to P420,000. The
insurance premium was a tax deductible expense in the Company’s 2012 cash basis tax return. Should the accrual
basis be used for the preparation of the income statement, the Company will report a P210,000 insurance expense in
2012 and 2013. The corporate income tax rate is 35%. On the December 31, 2012 balance sheet, how much should be
reported as deferred tax liability related to the prepaid insurance?
A. 73,500 B. 147,000 C. 36,750 D. 0

1) AJ Company’s assets and liabilities as of December 31, 2024 prior to the computation of the current and deferred taxes
for 2024 are as follows:
Cash and cash equivalents 1,600,000
Accounts receivable, net of allowance P60,000 400,000
Rent receivable 899,379
Inventory, net of allowance P50,000 350,000
Land 1,000,000
Building 1,500,000
Accumulated depreciation – building 750,000
Machinery 720,000
Accumulated depreciation – machinery 450,000

Accounts payable 150,000

Estimated warranty obligations 300,000
Unearned service revenue 290,000

The following information was provided in relation to the preparation of AJ Company’s 2014 tax return:
 The deferred tax asset, January 1, 2024 was P210,000; deferred tax liability, P229,950
 The allowance method for recording bad debts is used for financial purposes, for tax purposes, however, bad debts
are recognized only when they are considered as worthless
 Inventory is reported net of allowances for obsolescence; no allowances are recognized for tax purposes
 Income from rent and services to customers are taxable only upon receipt of cash; while warranty costs are
deductible only upon payment of cash
 Building and machinery were acquired 5 years ago; both are depreciated under the straight-line method with no
expected residual values; For tax purposes, the depreciation of the assets is under the double-declining balance
method
 The pre-tax accounting income for 2024, P400,000; There were no permanent differences during 2024. Tax rate for
current and future years is 35%.

Deferred tax asset, December 31, 2014

A. 206,500 B. 210,000 C. 245,000 D. 280,000

BALANCE SHEET METHOD

Accounting Income ---
Permanent differences:
Non Taxable Income ---
Non Deductible Expense --- ---
Accounting Income subject to tax --- % --- Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( + ) --- % --- Increase in DTA ( benefit )
Taxable Temporary ( – ) --- % --- Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( – ) Decrease in DTA ( expense )
Taxable Temporary ( + ) Decrease in DTL ( benefit )
Total --- --- % --- --- Deferred Tax Expense (Benefit)
Taxable Income --- % --- Current Tax Expense
Estimated tax payment made ---
Income tax payable ---

(Increase in DTA = benefit) (Decrease in DTA = expense)

(Increase in DTL = expense) (Decrease in DTL = benefit)
Deferred tax expense/benefit

Current tax expense

Deferred tax expense / benefit
Income tax expense

Deferred Tax Asset

Beginning
Deferred tax benefit . . Deferred tax expense
Ending

Deferred Tax Liability

1/1/20 Beginning
Deferred tax benefit . . Deferred tax expense
12/31/20 Ending

Use the following information for the next three (3) questions:

1) What is the investment income that should be recognized in 2016?

A B. C. D.
.

1) Balances of the deferred tax accounts of Taxy Ltd were as follows:

December 31, 2021 December 31, 2022
Deferred tax liability 3,200 2,000
Deferred tax asset 2,650 1,900
Income tax expense for the year ended December 31, 2022 was P1,750. The current tax payable at December 31,
2022 is P200 less than the current tax payable at the preceding year end. What was the amount of income tax paid
during the year ended December 31, 2022?
A. 1,100 B. 1,500 C. 2,000 D. 2,200

2) An entity has spent P1,000,000 in developing a new product. These costs meet the definition of an intangible asset
under PAS 38 and have been recognized in the statement of financial position. These costs have been recognized as an
expense for tax purposes. At the year-end the intangible asset is deemed to be impaired by P100,000. Assuming tax
rate is 30%, what statement is correct?
A. The tax base of the intangible asset at year-end is P900,000.
B. The entity has a taxable temporary difference at year-end of P900,000.
C. The entity should recognize deferred tax asset of P270,000 at year-end.
D. The entity should recognize deferred tax liability of P300,000 at year-end.

Use the following information for the next two (2) questions:
Midas Company started operations on January 1, 2021. At the end of the first year of operations, Midas reported pre-tax
income of P2,800,000. An analysis of the components included in this computation was a P300,000 non-taxable revenue
and installment sales of P800,000 of which P350,000 remained uncollected (due March 15, 2023). For tax purposes,
income from installment sales is taxable only when cash is collected. The enacted tax rates for 2021 and future years is
30%.

1) What is the current tax expense of Midas Company?

A. 840,000 B. 750,000 C. 645,000 D. 105,000
2) What is the deferred tax expense (benefit) of Midas Company?
A. 840,000 B. 750,000 C. 645,000 D. 105,000

ANSWER: C, D
Accounting Income 2,800,000
Permanent differences:
Non Taxable Income ( – ) (300,000)
Non Deductible Expense ( + ) --- (300,000)
Accounting Income subject to tax 2,500,000 30% 750,000 Total Tax Expense
Temporary Differences (current year):
Deductible Temporary ( + ) --- --- Increase in DTA ( benefit )
Taxable Temporary ( – ) (350,000) 30% 105,000 Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( – ) Decrease in DTA ( expense )
Taxable Temporary ( + ) Decrease in DTL ( benefit )
Total --- (350,000) 30% 105,000 105,000 Deferred Tax Expense (Benefit)
Taxable Income 2,150,000 30% 645,000 Current Tax Expense
Estimated tax payment made ---
Income tax payable 645,000

Use the following information for the next two (2) questions:
At the end of 2021, Pandamonium Company’s first year of operations. Pandamonium Company reported pretax financial
income of P4,900,000. Included under expenses was a P300,000 non-deductible expense. Furthermore, Pandamonium
Company includes a two-year warranty on its machinery sales. An analysis of the warranty records reveals that it has
recorded and accrued warranty provisions of P750,000. Cost and expenses under this classification, however, are
deductible only for tax purposes when paid. The enacted tax rates for 2021 and future year is 30%.

3) What is the current tax expense of Pandamonium for 2021?

A. 1,785,000 B. 1,560,000 C. 1,470,000 D. 1,335,000

4) What is the deferred tax expense (benefit) of Pandamonium for 2021?

A. 315,000 benefit B. 225,000 benefit C. 135,000 benefit D. 90,000 benefit

ANSWER: A, B
Accounting Income 4,900,000
Permanent differences:
Non Taxable Income ( – )
Non Deductible Expense ( + ) 300,000 300,000
Accounting Income subject to tax 5,200,000 30% 1,560,000 Total Tax Expense
Temporary Differences (current year):
Deductible Temporary ( + ) 750,000 30% (250,000) Increase in DTA ( benefit )
Taxable Temporary ( – ) Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( – ) Decrease in DTA ( expense )
Taxable Temporary ( + ) Decrease in DTL ( benefit )
Total 750,000 750,000 30% 225,000 (225,000) Deferred Tax Expense (Benefit)
Taxable Income 5,950,000 30% 1,785,000 Current Tax Expense
Estimated tax payment made ---
Income tax payable ---
Use the following information for the next two (2) questions:
Pebbles Company began operations on January 1, 2021 and reported a pretax financial income, of P3,400,000 as of year
ending December 31, 2021. This amount includes:
 Non-taxable revenue (interest on government bonds), P250,000.
 Non-deductible expenses (penalties and fines), P170,000.
 Depreciation expense on its machines of P225,000.
 Rental income of P170,000.

The depreciation expense and rental income included in the 2021 tax return were higher by P90,000 and P45,000
respectively. The enacted tax rate in 2021 and future years is 30%.

5) What is the current tax expense and deferred tax expense of Pebbles Company?
Deferred Tax Expense Current Tax Expense Deferred Tax Expense Current Tax Expense
A. 27,000 1,020,000 C. 13,500 996,000
B. 13,500 1,009,500 D. 13,500 982,500
6) What is the Deferred tax liability and Deferred tax asset that Pebbles should report in 2021 financial position?
Deferred Tax Liability Deferred Tax Asset Deferred Tax Liability Deferred Tax Asset
A. 27,000 13,500 C. 13,500 27,000
B. 78,000 88,500 D. 88,500 78,000

ANSWER: D, A
Accounting Income 3,400,000
Permanent differences:
Non Taxable Income ( – ) (250,000)
Non Deductible Expense ( + ) 170,000 (80,000)
Accounting Income subject to tax 3,320,000 30% 996,000 Total Tax Expense
Temporary Differences (current year):
Deductible Temporary ( + ) 45,000 30% 13,500 B Increase in DTA ( benefit )
Taxable Temporary ( – ) (90,000) 30% 27,000 E Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( – ) Decrease in DTA ( expense )
Taxable Temporary ( + ) Decrease in DTL ( benefit )
Total (45,000) 30% 225,000 13,500 E Deferred Tax Expense (Benefit)
Taxable Income 3,275,000 30% 982,500 Current Tax Expense
Estimated tax payment made ---
Income tax payable ---

Use the following information for the next two (2) questions:
During 2021, Prisoner Company’s first year of operations, the company reports pretax financial income at P800,000.
Prisoner Company’s enacted tax rate was 30% for 2021 – 2023 and 35% for all later years. Prisoner Company expects to
have taxable income in each of the next 5 years. The effects on future tax returns on temporary differences existing at
December 31, 2021 are summarized below:

Future Taxable (Deductible) amounts:

2022 2023 2024 2025 2026
Installment sales: 30,000 40,000 70,000
Depreciation: 10,000 10,000 10,000 10,000 10,000
Unearned rent: (50,000) (50,000) (50,000)

7) What is the current tax expense of Prisoner Company?

A. 252,000 B. 240,000 C. 225,000 D. 240,000

8) What is the deferred tax expense (benefit) of Prisoner Company?

A. 14,500 expense B. 14,500 benefit C. 12,000 expense D. 12,000 benefit

9) What is the balance of Deferred Tax Asset in the December 31, 2022 balance sheet of Prisoner?
A. 47,500 B. 35,000 C. 32,500 D. 12,000

10) What is the balance of Deferred Tax Liability in the December 31, 2023 balance sheet of Prisoner?
A. 35,000 B. 32,500 C. 28,000 D. 17,500

ANSWER: A/C, A, C, A
Temporary Differences (current Installment Sales
year):
Taxable Temporary ( – ) 30,000 30% 9,000 Increase in DTL ( expense )
 Taxable Temporary ( – ) 40,000 30% 12,000 Increase in DTL ( expense )
Taxable Temporary ( – ) 70,000 35% 24,500 Increase in DTL ( expense )
Taxable Temporary ( – ) 10,000 30% 3,000
Taxable Temporary ( – ) 10,000 30% 3,000
Taxable Temporary ( – ) 10,000 35% 3,500
Taxable Temporary ( – ) 10,000 35% 3,500
Taxable Temporary ( – ) 10,000 35% 3,500
Total 190,000 62,000 Deferred tax expense

Temporary Differences (current

year):
Deductible Temporary ( + ) 50,000 30% 15,000 Increase in DTL ( expense )
Deductible Temporary ( + ) 50,000 30% 15,000 Increase in DTL ( expense )
Deductible Temporary ( + ) 50,000 35% 17,500 Increase in DTL ( expense )
Total 150,000 47,000 Deferred tax benefit
61,500 Deferred tax expense
14,500 Net deferred tax expense

Accounting Income subject to tax 800,000

Temporary Differences (current year):
Deductible Temporary ( + ) 190,000
Taxable Temporary ( – ) (150,000)
Total 40,000
Taxable Income 840,000
Current tax rate 30%
Current tax expense 252,000

Temporary Differences (current

year):
Deductible Temporary ( + ) 50,000 30% 15,000
Deductible Temporary ( + ) 50,000 35% 17,500
Total 150,000 32,500

Temporary Differences (current Installment Sales

year):
Taxable Temporary ( – ) 70,000 35% 24,500
Taxable Temporary ( – ) 10,000 35% 3,500
Taxable Temporary ( – ) 10,000 35% 3,500
Taxable Temporary ( – ) 10,000 35% 3,500
Total 190,000 35,000

Use the following information for the next two (2) questions:
The following facts relate to Rally Company:
 Deferred tax liability, January 1 2021; 360,000.
 Deferred tax asset, January 1, 2021; 105,000.
 Pretax financial income for 2021; P2,000,000.
 Non-taxable revenues, P340,000; non-deductible expenses, P210,000.
 Cumulative difference at December 31, 2021, giving rise to future taxable amounts, P970,000.
 Cumulative difference at December 31, 2021, giving rise to future deductible amounts P220,000.
 Tax rate for current and future years 30%.

11) What is Rally Company’s current tax expense for the year?
A. 621,000 B. 600,000 C. 591,000 D. 561,000
12) What is Rally Company’s deferred tax expense (benefit) for the year?
A. 30,000 benefit B. 30,000 expense C. 39,000 expense D. 60,000 expense

ANSWER: C, A
Deferred Tax Asset
Beginning 105,000
Deferred tax benefit . 39,000 Deferred tax expense
Ending 66,000

Deferred Tax Liability

360,000 1/1/20 Beginning
Deferred tax benefit 69,000 . Deferred tax expense
291,000 12/31/20 Ending
Deferred tax benefit 69,000
Deferred tax expense 39,000
Net deferred benefit 30,000

Deferred tax benefit (30,000)

Current tax expense Squeeze 591,000
Income tax expense 2,000,000 – 340,000 + 210,000 x 30% 561,000

Use the following information for the next two (2) questions:
The following information was extracted from the records of Rampage Company as of December 31, 2021:
Carrying amount
Accounts receivable (NRV) 150,000
Prepaid rent 30,000
Motor vehicles 165,000
Accumulated depreciation 61,875
Provisions for warranty 12,000
Deposits received in advance 15,000
The depreciation rates for accounting and taxation are 15% and 20% respectively. Deposits are taxable when received while
rentals and warranty costs are deductible when paid. An allowance for doubtful debts of P25,000 has been raised against
accounts receivable for accounting purposes, but such debts are deductible only when written off as uncollectible. The rate
applicable was 30%.

13) What is the Deferred Tax Asset of Rampage Company as of December 31, 2021?
A. 21,787 B. 15,600 C. 15,188 D. 9,000
14) What is the Deferred Tax Liability of Rampage Company as of December 31, 2021?
A. 21,787 B. 15,600 C. 15,188 D. 9,000

ANSWER: B, C
Account Carrying Amount Tax Base Difference Tax Rate DTA DTL
Receivable 150,000 175,000 25,000 30% 7,500
Prepaid rent 30,000 0 30,000 30% 9,000
Motor vec. 103,125 82,500 20,625 30% 6,188
Warranty 12,000 0 12,000 30% 3,600
Deposit 15,000 0 15,000 30% 4,500 .
Total 15,600 15,188

Use the following information for the next two (2) questions:
West Company reported the following carrying amount of assets and liabilities at year-end:
Property 10,000,000
Plant and equipment 5,000,000
Inventory 4,000,000
Trade receivables 3,000,000
Trade payables 6,000,000
Cash 2,000,000

The value for tax purposes for property and for plant and equipment was P7,000,000 and P4,000,000, respectively. The
entity had made a provision for inventory obsolescence of P2,000,000 which is not allowable for tax purposes.

Further, an impairment loss against trade receivables of P1,000,000 had been made. This charge will not be allowed in the
current year for tax purposes. The tax rate is 30%.

15) What is the deferred tax liability at year-end?

A 1,200,000 B. 2,100,000 C. 3,000,000 D. 4,000,000
.

16) What is the deferred tax asset at year-end?

A 600,000 B. 300,000 C. 900,000 D. 0
.

ANSWER: A, C
Account Carrying Amount Tax Base Difference Tax Rate DTA DTL
Property 10,000,000 7,000,000 3,000,000 30% 900,000
Plant & Equip 5,000,000 4,000,000 1,000,000 30% 300,000
Inventory 4,000,000 6,000,000 2,000,000 30% 600,000
Receivable 3,000,000 4,000,000 1,000,000 30% 300,000
Total 900,000 1,200,000

Use the following information for the next two (2) questions:
Moon Queen Company at the end of 2021, its first year of operations, prepared reconciliation between pretax financial
income and taxable income as follows:
Pretax financial income 9,000,000
Provision for litigation 2,000,000
Prepaid rent 1,320,000

The estimated litigation of P2,000,000 will be settled in 2023. The company paid a total amount of P1,980,000 representing
a three-year lease term. The income tax rate is 30% for all years.

17) How much is the deferred tax liability on December 31, 2021?
A. 996,000 B. 600,000 C. 396,000 D. 0

18) How much is the taxable income for the year 2023 assuming the company reported pretax financial income of
P5,000,000 during 2023?
A. 7,660,000 B. 6,340,000 C. 3,660,000 D. 2,340,000

ANSWER: C, C
Accounting Income 9,000,000
Permanent differences:
Non Taxable Income ---
Non Deductible Expense --- ---
Accounting Income subject to tax 9,000,000 30% 2,700,000 Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( + ) 2,000,000 30% (600,000) Increase in DTA ( benefit )
Taxable Temporary ( – ) (1,320,000) 30% 396,000 Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( – ) Decrease in DTA ( expense )
Taxable Temporary ( + ) (204,000) Decrease in DTL ( benefit )
Total --- 680,000 % (204,000) --- Deferred Tax Expense (Benefit)
Taxable Income 9,680,000 30% 2,904,000 Current Tax Expense
Estimated tax payment made 1,980,000
Income tax payable 924,0000

Accounting Income subject to tax 5,000,000

Reversal of Differences:
Deductible Temporary ( – ) (2,000,000)
Taxable Temporary ( + ) 660,000
Total --- (1,340,000)
Taxable Income 3,660,000

19) Analysis of the assets and liabilities of Night Hound Corporation on December 31, 2018, disclosed assets with a tax
basis of P1,000,000 and a book basis of P1,300,000. There was no difference in the liability basis. The difference in
asset basis arose from temporary differences that would reverse in the following years:
2019…………………………………………………………………………………………………………………. 80,000
2020……………………………………………………..………………………………………………………….. 70,000
2021……………………………………………………..………………………………………………………….. 72,000
2022……………………………………………………..………………………………………………………….. 40,000
2023……………………………………………………..………………………………………………………….. 38,000

The enacted tax rates are 30 percent for the years 2018-2021 and 35 percent for 2022-2023. What is the balance of
deferred tax liability on December 31, 2018?
A. 105,000 B. 93,900 C. 90,000 D. 0

ANSWER: B
Temporary Differences (current
year):
Taxable Temporary ( – ) 80,000 30% 24,000 Increase in DTL ( expense )
Taxable Temporary ( – ) 70,000 30% 21,000 Increase in DTL ( expense )
Taxable Temporary ( – ) 72,000 30% 21,600 Increase in DTL ( expense )
Taxable Temporary ( – ) 40,000 35% 14,000 Increase in DTL ( expense )
Taxable Temporary ( – ) 38,000 35% 13,300 Increase in DTL ( expense )
Total 93,900

Use the following information for the next two (2) questions:
Nitro Corporation computed pretax financial income of P1,000,000 for its first year of operations ended December 31, 2022.
In preparing income tax return for the year, the tax accountant determined the following differences between 2022 financial
income and taxable income:
Nondeductible expenses 300,000
Nontaxable revenues 200,000
Installment sales reported in financial income but not in taxable income 500,000

The temporary difference is expected to reverse based on the percentage of collection for the next three years:
2023 – 60% 2024 – 30% 2025 – 10%

The enacted rates for this year and the next three years are as follows:
2022 – 35% 2024 – 32%
2023 – 34% 2025 – 30%

20) The deferred tax liability to be reported in the balance sheet on December 31, 2022 is
A. 210,000 B. 175,000 C. 165,000 D. 0

21) Assuming pretax financial income for 2023 amounting to P700,000, how much is the deferred tax liability on December
31, 2023?
A. 340,000 B. 238,000 C. 63,000 D. 0

ANSWER: C, C
Temporary Differences (current
year):
Taxable Temporary ( – ) 500,000 x 60% 300,000 34% 102,000 Increase in DTL ( expense )
Taxable Temporary ( – ) 500,000 x 30% 150,000 32% 48,000 Increase in DTL ( expense )
Taxable Temporary ( – ) 500,000 x 10% 50,000 30% 15,000 Increase in DTL ( expense )
Total 165,000

Temporary Differences (current

year):
Taxable Temporary ( – ) 500,000 x 30% 150,000 32% 48,000 Increase in DTL ( expense )
Taxable Temporary ( – ) 500,000 x 10% 50,000 30% 15,000 Increase in DTL ( expense )
Total 63,000

22) The differences between the book basis and tax basis of the assets and liabilities of Nomad Corporation at the end of
2022 are as follows:
Book Value Tax Base
Installment accounts receivable 100,000 0
Litigation liability 20,000 0
It is estimated that the litigation liability will be settled in 2023. The difference in installment accounts receivable will result
in taxable amount of P60,000 in 2023 and P40,000 in 2024. Nomad has taxable income of P700,000 in 2022 and is
expected to have taxable income in each of the following two years. Income tax rate is 35%. This is the first year of
operation of Nomad.

What is the net deferred tax expense; current tax expense; income tax expense of Nomad for 2022?
Net Deferred Tax Expense Current Tax Expense Income Tax Expense
A. 42,000 252,000 294,000
B. 28,000 245,000 273,000
C. 42,000 245,000 287,000
D. 28,000 252,000 280,000

ANSWER: B
Account Carrying Amount Tax Base Difference Tax Rate DTA DTL
Installment 100,000 0 100,000 35% 35,000
Litigation 20,000 0 20,000 35% 7,000
Total 7,000 35,000

Accounting Income
Permanent differences:
Non Taxable Income ---
Non Deductible Expense --- ---
Accounting Income subject to tax 273,000 Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( + ) (7,000) Increase in DTA ( benefit )
Taxable Temporary ( – ) 35,000 Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( – ) Decrease in DTA ( expense )
Taxable Temporary ( + ) Decrease in DTL ( benefit )
Total --- % 28,000 28,000 Deferred Tax Expense (Benefit)
Taxable Income 700,000 35% 245,000 Current Tax Expense
Estimated tax payment made --
Income tax payable 245,000

23) Toro Company reported P6,750,000 income before provision for income tax. To compute provision for income tax, the
following data are provided for 2018:
Rent received in advance 1,200,000
Income from exempt municipal bonds 1,500,000
Depreciation deduction for income tax purposes in excess of depreciation reported for financial
accounting purposes 750,000
Estimated tax payment for 2018 375,000
Enacted corporate income tax rate 30%
What amount of current tax liability should be reported on December 31, 2018?
A 1,335,000 B. 1,700,000 C. 1,935,000 D. 2,160,000
.

SOLUTION: A
Accounting Income 6,750,000
Permanent differences:
Non Taxable Income 1,500,000
Non Deductible Expense --- (1,500,000)
Accounting Income subject to tax 5,250,000 30% 1,575,000 Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( – ) 1,200,000 30% (360,000) Increase in DTA ( benefit )
Taxable Temporary ( + ) (750,000) 30% 225,000 Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( + ) Decrease in DTA ( expense )
Taxable Temporary ( – ) Decrease in DTL ( benefit )
Total 450,000 450,000 30% 135,000 (135,000) Deferred Tax Expense (Benefit)
Taxable Income 5,700,000 30% 1,710,000 Current Tax Expense
Estimated tax payment made (375,000)
Income tax payable 1,335,000

24) Step Company reported the following information relating to liabilities on December 31, 2023:

Accounts payable for goods and services purchased on open account amounted to P600,000 and accrued expenses
totaled P500,000 on December 31, 2023.

On July 1, 2023, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield 10%. The bonds mature on June 30,
2028, and pay interest annually every June 30. On December 31, 2023, the bonds were trading in the open market at
86 to yield 12%. The effective interest method is used to amortize bond discount.

The pretax financial income for 2023 was P10,500,000 and taxable income was P9,000,000. The difference is due to
P1,000,000 permanent difference and P500,000 temporary difference which is expected to reverse in 2024. The entity
is subject to the income tax rate of 30% and made estimated income tax payment during the year of P1,000,000. What
amount of current liabilities should be reported in December 31, 2023?
A 2,800,000 B. 3,000,000 C. 3,150,000 D. 1,700,000
.

ANSWER: B
Accounting Income 10,500,000
Permanent differences:
(–) Non Taxable Income (1,000,000)
(+) Non Deductible Expense --- (1,000,000)
Accounting Income subject to tax 9,500,000 % --- Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( – ) --- (500,000) % --- Increase in DTA ( benefit )
Taxable Temporary ( + ) --- % --- Increase in DTL ( expense )
Reversal of Differences:
 Deductible Temporary ( + ) Decrease in DTA ( expense )
Taxable Temporary ( – ) Decrease in DTL ( benefit )
Total --- --- % --- --- Deferred Tax Expense (Benefit)
Taxable Income 9,000,000 30% 2,700,000 Current Tax Expense
Estimated tax payment made (1,000,000)
Income tax payable 1,700,000
Accounts payable 600,000
Accrued expense 500,000
Accrued interest (5M x 8% x 6/12) 200,000
Total current liability 3,000,000

25) Rainy Company provided the following information on December 31, 2023?
Carrying amount Tax Base
Accounts receivable 3,000,000 3,500,000
Property, plant and equipment 6,500,000 5,000,000
Estimated warranty liability 1,600,000 0
Deposits received in advance 1,400,000 0

The depreciation rates for accounting and taxation are 15% and 25% respectively. The deposits are taxable when
received and warranty costs are deductible when paid. An allowance for doubtful debts of P500,000 has been raised
against accounts receivable for accounting purposes but such debts are deductible only when written off as
uncollectible. The tax rate is 30%. What amount should be reported as deferred tax asset on December 31, 2023?
A 1,500,000 B. 1,050,000 C. 900,000 D. 630,000
.

ANSWER: B
Account Carrying Amount Tax Base Difference Tax Rate DTA DTL
Receivable 3,000,000 3,500,000 500,000 30% 150,000
PPE 6,500,000 5,000,000 1,500,000 30% 450,000
Warranty 1,600,000 0 1,600,000 30% 480,000
Deposit 1,400,000 0 1,400,000 30% 420,000
Total 1,050,000 450,000

Use the following information for the next four (4) questions:
Evade Company has the following financial statement elements for which the December 31, 2018 carrying amount is
different from the December 31, 2018 tax basis:
Carrying amount Tax basis Difference
Equipment 5,500,000 4,000,000 1,500,000
Accrued liability – health care 500,000 0 500,000
Computer software cost 2,000,000 0 2,000,000
The difference between the carrying amount and tax basis of the equipment is due to accelerated depreciation for tax
purposes. The accrued liability is the estimated health care cost that was recognized as expense in 2018 but deductible for
tax purposes when actually paid. In January 2018, Evade Company incurred P3,000,000 of computer software cost.
Considering the technical feasibility of the project, this cost was capitalized and amortized over 3 years for accounting
purposes. However the total amount was expensed in 2018 for tax purposes. The pretax accounting income for 2018 is
P15,000,0000. The income tax rate is 30% and there are no deferred taxes on January 1, 2018.

26) What is the current tax expense for the year 2018?
A 4,500,000 B. 3,600,000 C. 5,400,000 D. 3,300,000
.
27) What amount should be reported as total tax expense?
A 4,500,000 B. 4,950,000 C. 4,050,000 D. 3,900,000
.
28) What amount should be reported as deferred tax liability on December 31, 2018?
A 1,050,000 B. 1,200,000 C. 900,000 D. 150,000
.
29) What amount should be reported as deferred tax asset on December 31, 2018?
A 750,000 B. 600,000 C. 150,000 D. 0
.

ANSWER: B, A, A, C
Account Carrying Amount Tax Base Difference Tax Rate DTA DTL
PPE 5,500,000 4,000,000 1,500,000 30% 450,000
Accrued Liab. 500,000 0 500,000 30% 150,000
Cmptr sfware 2,000,000 0 2,000,000 30% 600,000
Total 150,000 1,050,000

Accounting Income 15,000,000

Permanent differences:
Non Taxable Income ---
Non Deductible Expense --- ---
Accounting Income subject to tax 15,000,000 30% 4,500,000 Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( – ) --- % (150,000) Increase in DTA ( benefit )
Taxable Temporary ( + ) --- % 1,050,000 Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( + ) Decrease in DTA ( expense )
Taxable Temporary ( – ) Decrease in DTL ( benefit )
Total --- --- % 900,000 900,000 Deferred Tax Expense (Benefit)
Taxable Income --- % 3,600,000 Current Tax Expense

30) Humberg Company was organized on January 1, 2018 and had pretax accounting income of P5,000,000 and taxable
income of P8,000,000 for the year ended December 31, 2018. The only temporary difference is accrued product
warranty costs that are expected to be paid as follows: 2019 – P1,000,000, 2020 – P500,000, 2021 – P500,000, 2022 –
P1,000,000. The entity has never had any net operating losses and does not expect any in the future. The enacted tax
rates are 35% for 2018, 30% for 2019 to 2021, and 25% for 2022. On December 31, 2018 what amount should be
reported as deferred tax asset?
A 1,050,000 B. 700,000 C. 850,000 D. 600,000
.

ANSWER: B
Temporary Differences (current
year):
Deductible Temporary ( – ) --- 1,000,000 30% 300,000 Increase in DTA ( benefit )
Deductible Temporary ( – ) 500,000 30% 150,000 Increase in DTA ( benefit )
Deductible Temporary ( – ) 500,000 30% 150,000 Increase in DTA ( benefit )
Deductible Temporary ( – ) 1,000,000 25% 250,000 Increase in DTA ( benefit )
Total 850,000

31) Sosa Company located its business in two jurisdictions, France and Germany. In both countries, Sosa has the legal right
to offset the taxes receivable and payable. The following information related to deferred tax assets and liabilities:
Classification Amount Taxing Jurisdiction
Deferred tax asset 800,000 France
Deferred tax liability 300,000 Germany
Deferred tax liability 600,000 France

How should Sosa represent as deferred taxes at year-end?

DTA DTL DTA DTL
A. 800,000 900,000 C. 200,000 600,000
B. 0 1,000,000 D. 200,000 300,000

ANSWER: D
Classification Amount Taxing Jurisdiction
Deferred tax asset 800,000 France
Deferred tax liability (600,000) France
Net deferred tax asset 200,000

Deferred tax liability 300,000 Germany

32) Mitch Company prepared the following reconciliation for the first year of operations:
Pretax financial income for 2019 4,500,000
Tax exempt interest (375,000)
Temporary difference (1,125,000)
Taxable income 3,000,000

The temporary difference will reverse evenly in 2020 and 2021, at an enacted tax rate of 35% in 2020 and 32% in 2021.
The enacted tax rate for 2019 is 30%. What amount should be reported as deferred tax asset or liability on December
31, 2019?
A 376,875 asset B. 376,875 liability C. 360,000 asset D. 360,000 liability
.
ANSWER: B
Temporary Differences (current
year):
Taxable Temporary ( + ) 562,500 35% 196,875 Increase in DTL ( expense )
Taxable Temporary ( + ) 562,500 32% 180,000 Increase in DTL ( expense )
Total 376,875
Note 1 – since it was deducted from the accounting income, meaning it is not yet taxable now, but taxable in the future
(taxable temporary = DTL)

33) Allysa Company reported in the income statement for the first year of operations pretax income of P6,000,000. The
current year tax rate is 30% and the enacted rate for future years is 40%. The following differences existed between the
tax return and accounting records:
Tax return Accounting record
Bad debt expense 500,000 750,000
Depreciation expense 1,000,000 600,000
Tax-exempt interest revenue 200,000
What is the total tax expense?
A 1,695,000 B. 1,755,000 C. 1,635,000 D. 1,740,000
.

SOLUTION: B
Accounting Income 6,000,000
Permanent differences:
Non Taxable Income 200,000
Non Deductible Expense --- 200,000
Accounting Income subject to tax 6,200,000 x% 1,755,000 SQUEEZE Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( – ) 250,000 40% (100,000) Increase in DTA benefit
Taxable Temporary ( + ) (400,000) 40% 160,000 Increase in DTL expense
Reversal of Differences:
Deductible Temporary ( + ) Decrease in DTA expense
Taxable Temporary ( – ) Decrease in DTL benefit
Total (150,000) (150,000) 40% 60,000 60,000 Deferred Tax Expense (Benefit)
Taxable Income 6,050,000 30% 1,815,000 Current Tax Expense

Use the following information for the next two (2) questions:
Booth Company began operations on January 1, 2019. For financial reporting, the entity recognized revenue from sales
under accrual method. However, in the income tax return, the entity reported qualifying sales under the installment method.
The gross profit on these installment sales under the accrual method was P3,000,000 for 2019 and P5,000,000 for 2020.
The gross profit under the installment method was P1,500,000 for 2019 and P2,600,000 for 2020. The income tax rate is
30%. There are no other temporary or permanent differences. The pretax accounting income for 2020 is P8,000,000.

34) What is the current tax expense for 2020?

A 1,680,000 B. 2,400,000 C. 1,230,000 D. 3,120,000
.

35) What amount should be reported as deferred tax asset or liability on December 31, 2020?
A 1,170,000 asset B. 1,170,000 liability C. 720,000 asset D. 720,000 liability
.

SOLUTION: A, B
Accounting Income 8,000,000
Permanent differences:
Non Taxable Income ---
Non Deductible Expense --- ---
Accounting Income subject to tax 8,000,000 30% 2,400,000 Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary --- () Increase in DTA ( benefit )
Taxable Temporary *(2,400,000 Increase in DTL ( expense )
)
Reversal of Differences:
Deductible Temporary Decrease in DTA ( expense )
Taxable Temporary () Decrease in DTL ( benefit )
Total (2,400,000) (2,400,000) 30% 720,000 Deferred Tax Expense (DTE)
Taxable Income 5,600,000 30% 1,680,000 Current Tax Expense
*includes the reversal already
Deferred Tax Asset
Beginning Deferred tax expense
Deferred tax benefit
Ending

Deferred Tax Liability

Deferred tax benefit **450,000 1/1/20 Beginning
720,000 Deferred tax expense
1,680,000 12/31/20 Ending
**(3,000,000 – 1,500,000) x 30% = 450,000

Use the following information for the next four (4) questions:
The accountant of Monkey King Company presented to you the following information in line with your 2022 audit of Monkey
King Company’s income tax related balances:
Pre-tax financial income 3,000,000
Impairment loss on Machinery 50,000
Unearned rental income 350,000
Prepaid advertising expense 250,000
Interest income on time deposit 80,000
Excess tax depreciation over accounting depreciation 420,000
Installment sale which will be recognized as taxable income upon collection 900,000
Bad debts expense using a method under accrual basis 75,000
Provision for warranty 180,000
Unrealized loss on trading securities 20,000
Impairment loss on goodwill 30,000
Capitalized development cost 100,000
Income tax rate is constant 30%
36) How much is the total income tax expense for the year 2022?
A. 1,183,500 B. 885,000 C. 586,500 D. 360,000
37) How much is the deferred tax asset at December 31, 2022?
A. 586,500 B. 501,000 C. 298,500 D. 202,500
38) How much is the deferred tax liability at December 31, 2022?
A. 586,500 B. 501,000 C. 298,500 D. 202,500
39) How much is the current tax expense for the year 2022?
A. 1,183,500 B. 885,000 C. 586,500 D. 360,000

SOLUTION: B, D, B, C
Accounting Income 3,000,000
Permanent differences:
Non Taxable Income ( – ) (80,000)
Non Deductible Expense ( + ) 30,000 (50,000)
Accounting Income subject to tax 2,950,000 30% 885,000 Total Tax Expense
Temporary Differences (current year):
Deductible Temporary ( + ) imp. mchn 50,000 30% 15,000 Increase in DTA ( benefit )
Deductible Temporary ( + ) un. rent 350,000 30% 105,000 Increase in DTA ( benefit )
Deductible Temporary ( + ) bad debt 75,000 30% 22,500 Increase in DTA ( benefit )
Deductible Temporary ( + ) warranty 180,000 30% 54,000 Increase in DTA ( benefit )
Deductible Temporary ( + ) trading sec 20,000 30% 6,000 Increase in DTA ( benefit )
Taxable Temporary ( + ) prpaid exp (250,000) 30% 75,000 Increase in DTL ( expense )
Taxable Temporary ( + ) depreciation (420,000) 30% 126,000 Increase in DTL ( expense )
Taxable Temporary ( + ) installment (900,000) 30% 270,000 Increase in DTL ( expense )
Taxable Temporary ( + ) dev. cost (100,000) 30% 30,000 Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( + ) Decrease in DTA expense
Taxable Temporary ( – ) Decrease in DTL benefit
Total (995,000) (995,000) 40% 60,000 60,000 Deferred Tax Expense (Benefit)
Taxable Income 1,955,000 30% 586,500 Current Tax Expense
Estimated tax payment made ---
Income tax payable ---
40) At the beginning of 2022, Shellshock Company purchased an asset for P600,000 with an estimated useful life of 5 years
and an estimated salvage value of P50,000. For financial reporting purposes the asset is being depreciated using the
straight-line method; for tax purposes the double-declining-balance method is being used. Shellshock Company’s tax
rate is 40% for 2022 and all future years. At the end of 2022, which of the following deferred tax accounts and balances
is reported on Shellshock’s balance sheet?
A. 52,000 DTA B. 78,000 DTA C. 52,000 DTL D. 78,000 DTL

ANSWER: C
Financial reporting depreciation [(600,000 – 50,000) / 5] 110,000
Tax depreciation (600,000 x 40%) 240,000
Taxable temporary difference 130,000
Tax rate 40%
DTL 52,000

Use the following information for the next two (2) questions:
The accountant of Solstice Company presented to you the following information in line with your 2020 audit of Solstice
Company’s income tax related balances:
Pre-tax financial income 3,000,000
Impairment loss on Machinery 50,000
Unearned rental income 350,000
Prepaid advertising expense 250,000
Interest income on time deposit 80,000
Excess tax depreciation over accounting depreciation 420,000
Installment sale which will be recognized as taxable income upon collection 900,000
Bad debts expense using a method under accrual basis 75,000
Provision for warranty 180,000
Income tax rate is constant at 30% for all years

41) How much is the total income tax expense for the year 2020?
A. 891,000 B. 900,000 C. 876,000 D. 601,500

42) How much is the deferred tax asset at December 31, 2020?
A. 495,000 B. 471,000 C. 196,500 D. 181,500

43) How much is the deferred tax liability at December 31, 2020?
A. 495,000 B. 471,000 C. 196,500 D. 181,500

Use the following information for the next two (2) questions:
Gladiator Company provided the following information for the year ended December 31, 2020:
Increase in income tax payable 50,000
Income tax paid 10,000
Proceeds of life insurance on death of officer 30,000
The company paid an advance rental payment for 6 months on October 31, 2020 amounting to P60,000. The prepayment is
taxable in the period it was paid. The income tax rate is 30%.

44) The pretax financial income of Gladiator Company for 2020 is

A. 270,000 B. 260,000 C. 240,000 D. 200,000

45) What amount should Gladiator Company report as total income tax expense for the year ended December 31, 2020?
A. 81,000 B. 72,000 C. 60,000 D. 50,000

46) The following facts relate to Tundra Company:

 Deferred tax liability, January 1 2021; 360,000.
 Deferred tax asset, January 1, 2021; 105,000.
 Pretax financial income for 2021; P2,000,000.
 Non-taxable revenues, P340,000; non-deductible expenses, P210,000.
 Cumulative difference at December 31, 2021, giving rise to future taxable amounts, P970,000.
 Cumulative difference at December 31, 2021, giving rise to future deductible amounts P220,000.
 Tax rate for current and future years 30%.

The deferred tax asset on December 31, 2021 is

A. 438,000 B. 285,000 C. 153,000 D. 105,000
47) Accursed Entity has the following information:
12/31/20 12/31/21
Cumulative temporary difference giving rise to future taxable amount 8,000,000 10,000,000
Cumulative temporary difference giving rise to future deductible amount 6,000,000 5,000,000
Tax rate 30% 30%
The deferred tax expense for the year 2021 is
A. 1,50,000 B. 900,000 C. 600,000 D. 300,000

ANSWER: B
Deferred Tax Asset
Beginning 6M x 30% 1,800,000
Deferred tax benefit . 300,000 E Deferred tax expense
Ending 1,500,000

Deferred Tax Liability

2,400,000 8M x 30% 1/1/20 Beginning
Deferred tax benefit . 600,000 E Deferred tax expense
3,000,000 10M x 30% 12/31/20 Ending

(Increase in DTA = benefit) (Decrease in DTA = expense) 300,000 E

(Increase in DTL = expense) (Decrease in DTL = benefit) 600,000 E
Deferred tax expense/benefit 900,000 E

48) During 2021, Anum-Ra Company’s first year of operations, the company reports pretax financial income at P1,000,000.
Anum-Ra Company’s enacted tax rate was 32% for 2022 – 2023 and 30% for for 2024-2025; 25% for 2026 onwards.
Anum-Ra Company expects to have taxable income in each of the next 5 years. The effects on future tax returns on
temporary differences existing at December 31, 2022 are summarized below:

Future Taxable (Deductible) amounts:

2023 2024 2025 2026 2027
Installment sales: 30,000 20,000 35,000 25,000
Depreciation: 10,000 10,000 10,000 10,000 10,000
Unearned rent: (50,000) (8,000) (12,000)

Total income tax expense to be reported in 2022 is

A. 347,750 B. 314,750 C. 298,650 D. 252,000

Use the following information for the next two (2) questions:
Apex Company has the following carrying amount at the end of its first year, December 31, 2022:
Property 10,000,000 Trade receivable 3,000,000
Plant and equipment 5,000,000 Trade payable 6,000,000
Inventory 4,000,000 Cash 2,000,000

An impairment charge against trade receivables of P1,500,000 has been made. This charge will not be allowed in the
current year for tax purposes. Apex Company has made a provision for inventory obsolescence of P200,000 which is not
allowable for tax purposes until realized. The value for tax purposes for property and for plant and equipment was
P8,000,000 and P4,000,000 respectively. The pre-tax income for 2022 was P4,500,000. Non-taxable revenues P300,000
while the non-deductible expenses amounted to P100,000. The current and future tax rate is 30%.

49) Income tax expense – current for 2022 is

A. 1,080,000 B. 1,020,000 C. 900,000 D. 480,000

50) The cumulative future taxable amount at December 31, 2022 is

A. 3,700,000 B. 3,500,000 C. 3,000,000 D. 2,000,000

51) The deferred tax asset in the non-current section of the December 31, 2022 balance sheet is
A. 810,000 B. 510,000 C. 450,000 D. 390,000

52) An equipment cost P4,000. For tax purposes, depreciation of P2,400 has already been deducted in the current and prior
periods and the remaining cost will be deductible in future periods, either as depreciation or through a deduction on
 disposal. Revenue generated by using the equipment is taxable, any gain on disposal of the equipment will be taxable
and any loss on disposal will be deductible for tax purposes, how much is the tax base of the equipment?
A. 4,000 B. 2,400 C. 1,600 D. 0

53) Rent receivable has a carrying amount of P4,000. The related interest revenue will be taxed on a cash basis. How much
is the tax base on the asset?
A. 4,000 B. 2,400 C. 1,600 D. 0

54) Trade receivable have a carrying amount of P4,000. The related revenue has already been included in taxable profit.
How much is the tax base of the asset?
A. 4,000 B. 2,400 C. 1,600 D. 0

55) Dividends receivable from a subsidiary have a carrying amount of P4,000. The dividends are not taxable. How much is
the tax base of the asset?
A. 4,000 B. 2,400 C. 1,600 D. 0

ANSWER: A
Asset arising from a revenue that will result to a permanent difference (non-taxable or revenue already subjected to a final
tax), its tax base is equal to its carrying amount.

56) A loan receivable has a carrying amount of P4,000. The repayment of the loan will have no tax consequences. How
much is the tax base of the asset?
A. 4,000 B. 2,400 C. 1,600 D. 0

ANSWER: A
If the liability arise from an expense that is non deductible for tax purpose, its tax base is equal to its carrying amount.

57) Accrued rent expense with a carrying amount of P4,000. The related expense will be deducted for tax purposes on a
cash basis. How much is the tax base of the liability?
A. 4,000 B. 2,400 C. 1,600 D. 0

58) Current liabilities include interest revenue received in advance, with a carrying amount of P4,000. The related interest
revenue was taxed on a cash basis. How much is the tax base of the liability?
A. 4,000 B. 2,400 C. 1,600 D. 0

59) Current liabilities include accrued expenses with a carrying amount of P4,000. The related expense has already been
deducted for tax purposes. How much is the tax base of the liability?
A. 4,000 B. 2,400 C. 1,600 D. 0

60) Current liabilities include accrued fines and penalties with a carrying amount of P4,000. Fines and penalties are not
deductible for tax purposes. How much is the tax base of the liability?
A. 4,000 B. 2,400 C. 1,600 D. 0

61) A loan payable has a carrying amount of P4,000. The repayment of the loan will have no tax consequences. How much
is the tax base of the liability?
A. 4,000 B. 2,400 C. 1,600 D. 0

Use the following information for the next two (2) questions:
Pretax financial income of Pan company is P1,800,000 and current income tax rate is 30%. Assume the following
differences between the financial income and taxable income for the year:
 Fines paid for late payment of taxes, P15,500.
 Premiums paid on life insurance policy on officers, P200,000. Beneficiary named in the policies is Pan Company
 Impairment loss recognized on goodwill, P90,000.
 Excess of tax depreciation over book depreciation, P30,000.
 Excess of warranty expense over actual expenditures, P27,000.
 Excess of estimated uncollectible accounts for financial reporting over the accounts actually written off for tax reporting,
P12,000.
 Rent collected in advance of period earned, P35,000.

62) Taxable income is

A. 2,149,500 B. 2,105,000 C. 2,079,000 D. 2,061,000
63) Deferred tax asset (DTA) and deferred tax liabilities (DTL) are
Deferred Tax Liability Deferred Tax Asset Deferred Tax Liability Deferred Tax Asset
A. 9,000 22,200 C. 11,700 19,500
B. 22,200 9,000 D. 19,500 11,700

Use the following information for the next three (3) questions:
Goten Company, a domestic corporation, started operations in the latter part of the first quarter of 2021. The company
opted to report its financial statements for the nine month ended December 31, 2021. The pretax financial income for the
period was P1,200,000. In preparing the income tax return for the period, the tax accountant determined the following
differences between 2021 financial income and taxable income.
 Because of non-compliance with some local government requirements, the city treasurer assessed fines and penalties
totaling P22,500.
 The company made a donation to Hospicio de San Kanor amounting to P25,000. Tax laws consider a donation of this
kind as non-deductible in full amount.
 Cash dividends received from equity investments in a domestic corporation, P5,200.
 Rent was paid in advance for one year amounting to P240,000. The financial statement of Goten Company reported
prepaid rent of P60,000.
 The company uses straight-line depreciation for all its depreciable assets and sum-of-the-years’ digits for tax purposes,
resulting to a difference in depreciation expense of P50,000.
 Currently, the income tax rate is 30%. There are no changes in tax rates that have been enacted or substantially
enacted for future years.

64) How much is the deferred tax liability at December 31, 2021?
A. 33,000 B. 30,000 C. 18,000 D. 15,000

65) What is the taxable income?

A. 1,352,300 B. 1,132,300 C. 1,242,300 D. 1,200,000

66) What is the total income tax expense?

A. 372,690 B. 360,000 C. 330,690 D. 306,690

ANSWER: A, B, A
Accounting Income 1,200,000
Permanent differences:
Non Taxable Income (5,200)
Non Deductible Expense 22,500
Non Deductible Expense 25,000 42,300
Accounting Income subject to tax 1,242,300 30% 372,690 Total Tax Expense
Temporary Differences (current
year):
Taxable Temporary ( - ) (60,000) 30% 18,000 Increase in DTL
Taxable Temporary ( - ) (50,000) 30% 15,000 Increase in DTL
Total --- (110,000) % --- 33,000 Deferred Tax Expense (Benefit)
Taxable Income 1,132,300 % --- Current Tax Expense

Use the following information for the next six (6) questions:
Balphagore Company has pretax income of P400,000. The following information was gathered:
Loss on expropriation of property……………………..……………………..…………………………………….. 140,000
Non-deductible premium on life insurance of key employees……………………..…………………………….. 24,000
Interest income received on government securities subjected to final tax……………………………………… 20,000
Excess of depreciation used in taxation over straight line depreciation in financial reporting ………………… 40,000
Warranty expense accrued for financial reporting but is tax deductible only when actually paid……………… 60,000
Rent received in advance……………………..……………………..……………………..………………………. 32,000
Quarterly income tax payment (first to third quarter) ……………………..……………………………………… 80,000
Tax rate……………………..……………………..……………………..……………………..……………………. 30%
Beginning balance of taxable temporary difference ……………………..……………………..………………… 48,000
Beginning balance of deductible temporary difference……………………..……………………………………. 36,000
67) How much is the income tax expense?
A. 178,800 B. 172,200 C. 163,200 D. 163,020
68) How much is the current tax expense?
A. 178,800 B. 172,200 C. 163,200 D. 163,020
69) How much is the deferred tax expense (benefit)?
A. 22,000 benefit B. 15,000 benefit C. 22,200 expense D. 15,600 expense
70) How much is the current tax payable?
A. 178,800 B. 163,020 C. 98,800 D. 86,400
71) How much is the deferred tax liability to be presented in the year-end statement of financial position?
A. 28,400 B. 26,400 C. 24,800 D. 24,600
72) How much is the deferred tax asset to be presented in the year-end statement of financial position?
A. 38,400 B. 36,400 C. 34,800 D. 34,600

Use the following information for the next two (2) questions:
The following facts relate to Tomcat Corporation for the current year:
 Taxable profit, P430,000
 Deferred tax liability, January 1, P48,000
 Deferred tax asset, January 1, P16,000
 Cumulative temporary difference at December 31, giving rise to future taxable amounts, P230,000
 Cumulative temporary difference at December 31, giving rise to the future deductible amounts, P95,000.
 Tax rate for all years, 35%.

73) What is the current tax expense?

A. 165,750 B. 150,500 C. 32,500 D. 17,250

74) What is the deferred tax expense?

A. 165,750 B. 32,500 C. 17,250 D. 15,250

75) What is the total tax expense?

A 17,250 B. 32,500 C. 150,500 D. 165,750
.

76) Muning Company is determining the amount of its pretax accounting income for the year by making adjustment to
taxable income from the company’s year-end income tax return. The tax return indicates taxable income of P400,000,
on which a tax liability of P120,000 has been recognized (P400,000 x 30% = P120,000). Additional information is shown
below:

Goodwill impairment loss not included as a deduction in the tax return but may be deducted for financial
reporting 140,000
Interest income on savings and time deposits with private banks 24,000
Revenues from installment sales are recognized as goods are sold but are taxes only when installment
payment are collected 160,000
Excess of depreciation recognized for financial reporting over depreciation recognized for taxation purposes
due to shorter depreciation period used for financial reporting 40,000
Bad debt expense recognized using the allowance method 60,000
How much is the pretax income?
A. 576,000 B. 480,000 C. 460,000 D. 344,000

77) Krillin Company reports taxable income of P1,658,000 on its income tax return for the year ended December 31, 2021.
Temporary differences between financial income and taxable income for the year are:

 Book depreciation in excess of tax depreciation, P160,000.

 Accrual of product warranty claims in excess of actual claims, P250,000.

 Reported installment sales revenue, P530,000.

What is Krillin’s Company’s financial income subject to tax for the year ended December 31, 2021?
A. 2,598,000 B. 1,778,000 C. 1,658,000 D. 1,538,000

78) Furry Cat Company reported P6,750,000 income before provision for income tax. To compute provision for income tax,
the following data are provided for 2018:

Rent received in advance 1,200,000

Income from exempt municipal bonds 1,500,000
Depreciation deduction for income tax purposes in excess of depreciation reported for financial accounting
purposes 750,000
Estimated tax payment for 2018 375,000
Enacted corporate income tax rate 30%
 What amount of current tax liability should be reported on December 31, 2018?
A. 2,160,000 B. 1,935,000 C. 1,700,000 D. 1,335,000

Use the following information for the next five (5) questions:
Taken from the records of Cats Company as of December 31, 2021 is the following information:
Carrying Amount Tax Base Difference
Computer software cost 2,000,000 0 2,000,000
Machinery 4,000,000 2,400,000 1,600,000
Accrued liability – health care 800,000 0 800,000

Additional information:
 Development costs of software after technological feasibility was established were capitalized for financial reporting.
Such costs were recognized as outright deductions for tax purposes.
 Straight line method is used in depreciating the machinery while sum-of-years’ digit method is used for tax purposes.
 Health care benefits are accrued as incurred but are tax deductible only when cash is actually paid.
 Pretax profit for 2021 is P4,000,000. Income tax rate is 30%.
 There were no temporary differences as of January 1, 2021.

79) How much is the deferred tax liabilities as of December 31, 2021?
A. 1,800,000 B. 1,420,000 C. 1,240,000 D. 1,080,000

80) How much is the deferred tax asset as of December 31, 2021?
A. 240,000 B. 180,000 C. 142,000 D. 108,000

81) How much is the income tax expense for the year?
A. 1,420,000 B. 1,360,000 C. 1,240,000 D. 1,200,000

82) How much is the current tax expense for the year?
A. 420,000 B. 360,000 C. 240,000 D. 200,000

83) How much is the deferred tax expense (benefit) for the year?
A. 840,000 benefit B. 480,000 benefit C. 840,000 expense D. 480,000 expense

Use the following information for the next four questions:

Pusa Company started its operations on January 1, 2021. Information on temporary differences during the first two years of
operations is shown below.
December 31, 2022 December 31, 2021
Carrying Amount Tax Base Difference Carrying amount Tax base Difference
Asset 400,000 360,000 40,000 480,000 400,000 80,000
Liabilities 200,000 172,000 28,000 240,000 180,000 60,000

Pretax income was P1,600,000 and P2,000,000 in 2022 and 2021 respectively. Income tax rate is 30%.

84) How much is the income tax expense in 2021?

A. 620,000 B. 600,000 C. 594,000 D. 480,000

85) How much is the current tax expense in 2021?

A. 600,000 B. 594,000 C. 549,000 D. 476,400

86) How much is the income tax expense in 2022?

A. 600,000 B. 480,000 C. 449,000 D. 420,000

87) How much is the current tax expense in 2022?

A. 594,000 B. 484,200 C. 482,400 D. 476,400

88) Mouser Company provided the following information on December 31, 2023:

Carrying Amount Tax Base

Accounts receivable 3,000,000 3,500,000
Property, plant and equipment 6,500,000 5,000,000
Estimated warranty liability 1,600,000 0
Deposits received in advance 1,400,000 0
 The depreciation rates for accounting taxation are 15% and 25% respectively. The deposits are taxable when received
and warranty costs are deductible when paid. An allowance for doubtful debts of P500,000 has been raised against
account receivable for accounting purposes but such debts are deductible only when written off as uncollectible. Tax
rate is 30%. What amount should be reported as deferred tax asset on December 31, 2023?
A. 1,500,000 B. 1,050,000 C. 900,000 D. 630,000

Use the following information for the next three (3) questions:
Yamcha Company reported pretax financial income of P6,500,000 and P8,200,000 for years 2020 and 2021, respectively.
The tax bases for its assets and liabilities on December 31, 2020 and December 31, 2021 were equal to their carrying
amounts except for property, plant and equipment and provision for warranty. Equipment costing P4,000,000 with estimated
residual value of P400,000 and estimated useful life of 8 years, was acquired on January 1, 2020. This asset was
depreciated using straight-line method for financial reporting purposes and sum-of-the-years’ digits method for tax purposes.

For years 2020 and 2021, the company recorded warranty expense in its books amounting to P325,000 and P430,000,
respectively. However, actual warranty expenditures were posted in the accounts amounting to P290,000 and P330,000 for
years 2020 and 2021, respectively. There is no other temporary difference during the two-year period. Income tax rate for all
years is 30%

89) What are the taxable amounts for years 2020 and 2021?
2020 2021 2020 2021
A. 6,185,000 8,050,000 C. 6,815,000 8,350,000
B. 6,500,000 8,200,000 D. 6,885,000 8,550,000

90) How much was the deferred tax asset at December 31, 2020 and December 31, 2021?
2020 2021 2020 2021
A. 40,500 10,500 C. 10,500 105,000
B. 10,500 40,500 D. 40,500 180,000

91) How much was the deferred tax liability at December 31, 2020 and December 31, 2021?
2020 2021 2020 2021
A. 10,500 105,000 C. 105,000 108,000
B. 40,500 180,000 D. 180,000 105,000

92) The following information is taken from Piccolo Company’s 2021 profit and loss:
Profit before income taxes 3,000,000
Income tax expense
Current 1,128,000
Deferred 84,000 1,212,000
Profit 1,788,000

Piccolo Company’s first year of operation was 2021. The company has a 30% tax rate. Piccolo decided to use
accelerated depreciation for tax purposes and the straight-line method for financial reporting purposes. The amount
charge to depreciation expense in 2021 was P1,200,000. Assuming the temporary difference existed between the book
income and taxable income, what amount did Piccolo Company deduct for depreciation on its tax return for 2021?
A. 1,480,000 B. 1,280,000 C. 1,200,000 D. 920,000

ANSWER: A,
Deferred tax expense (expense, since it was added to the current tax expense) 84,000
Tax rate 30%
Taxable temporary difference due to excess tax depreciation 280,000
Accounting depreciation 1,200,000
Tax depreciation 1,480,000

93) Analysis of the assets and liabilities of Kuting Company on December 31, 2021 disclosed assets with a tax basis of
P1,000,000 and a book basis of P1,300,000. There was no difference in the liability basis. The difference in asset basis
arose from temporary difference that would reverse in the following years:
2022 80,000 2025 40,000
2023 70,000 2026 38,000
2024 72,000

The enacted tax rates are 30% for the years 2021 – 2024 and 32% for the years 2025 – 2026. What is the total deferred
tax liability at December 31, 2021?
 A. 99,000 B. 96,000 C. 95,560 D. 90,000

94) Meow Company reported an excess of warranty expense over warranty deductions of P720,000 for the year ended
December 31, 2021. This temporary difference will reverse in equal amounts over the years 2022 through 2024. The
enacted tax rates are as follows:
2021 30% 2023 34%
2022 32% 2024 36%

The reporting for this temporary difference at December 31, 2021 would be a
A. 244,800 DTL B. 244,800 DTA C. 216,000 DTL D. 216,000 DTA

95) Loadstone Company was organized on January 1, 2019 and had pretax accounting income of P5,000,000 and taxable
income of P8,000,000 for the year ended December 31, 2019. The only temporary difference is accrued product
warranty costs that are expected to be paid as follows: 2020 – P1,000,000, 2021 – P500,000, 2022 – P500,000, 2023 –
P1,000,000. The entity has never had any net operating losses and does not expect any in the future. The enacted tax
rates are 35% for 2024, 30% for 2020 to 2022, and 25% for 2023. On December 31, 2019, what amount should be
reported as deferred tax asset?
A 1,050,000 B. 850,000 C. 700,000 D. 600,000
.

96) Moraxus Company acquired plant and equipment for P1,000,000 on January 1, 2019. The asset is depreciated at 25%
a year on the straight line basis for financial accounting purposes. However, management decided to depreciate the
asset at 30% a year for tax purposes. The income tax rate is 30%. What is the deferred tax asset or liability on
December 31, 2019?
A 15,000 liability B. 15,000 asset C. 50,000 asset D. 50,000 liability
.

97) In 2019, Goid Company reported for financial statement purposes the following items, which were not included in
taxable income:
Installment gain to be collected equally in 2020 through 2022, P1,500,000.
Estimated future warranty costs to be paid equally in 2020 through 2022, P2,100,000.

There were no temporary differences in prior years. Goid’s enacted tax rates are 30% for 2019, 2020 and 35% for
2021-2022. The company has an enforceable right to set-off deferred tax liability against deferred tax asset. In Goid’s
December 31, 2019 statement of financial position, what amounts of the deferred tax asset should be classified as
current and non-current?
Current Non Current Current Non Current
A. 0 190,000 C. 60,000 140,000
B. 0 200,000 D. 70,000 120,000

98) Laxa Company reported the following results for the year ended December 31, 2019, its first year of operations:
2019
Income per books before income taxes 750,000
Taxable income 1,200,000

The disparity between book income and taxable income is attributable to a temporary difference, which will reverse in
2020. What should Laxa record as a net deferred tax asset or liability as of December 31, 2019, assuming that the
enacted tax rates in effect are 30% in 2019 and 35% in 2020? Assume that the company has an enforceable right to off
set deferred tax liability against deferred tax asset.
A 135,000 DTA B. 135,000 DTA C. 157,500 DTA D. 157,500 DTL
.

Use the following information for the next three (3) questions:
At the end of 2019, its first year of operations, Limheya Company prepared a reconciliation between pretax financial income
and table income as follows:

Pretax financial income 4,500,000

Estimated litigation expenses 6,000,000
Excess depreciation for taxes (9,000,000)
Taxable income 1,500,000
The estimated litigation expense of P6,000,000 will be deductible in 2020 when it is expected to be paid. Use of depreciable
assets will result in taxable amounts of P3,000,000 in each of the next three years. The income tax rate is 30% for all years.
Assume no payment yet has been paid for income taxes.

99) What is the income tax payable at the end of 2019?

A 1,350,000 B. 900,000 C. 450,000 D. 0
.
100) What is the amount of deferred tax asset recorded at December 31, 2019?
A 1,800,000 B. 1,350,000 C. 900,000 D. 450,000
.
101) What is the amount of non-current deferred tax liability reported at December 31, 2019?
A 2,700,000 B. 2,250,000 C. 1,800,000 D. 900,000
.

102) The following information is taken form Manzano Corporation’s 2019 statement of comprehensive income:
Profit before income taxes 1,500,000
Income tax expense:
Current 565,000
Deferred 42,000 606,000
Profit 894,000

Manzano’s first year of operations was 2019. The company has a 30% tax rate and the management decided to use
accelerated depreciation for tax purposes and the straight-line method for financial reporting purpose. The amount
charged to depreciation expense in 2019 was P600,000. Assuming no other temporary difference existed between book
income and taxable income, what amount did Manzano deduct for depreciation on its tax return for 2019?
A 740,000 B. 600,000 C. 570,000 D. 460,000
.

103) The following information is taken form Marasigan Corporation’s 2019 statement of comprehensive income:
Profit before income taxes 7,500,000
Income tax expense:
Current 2,077,500
Deferred 172,500 2,250,000
Profit 5,250,000

Marasigan’s first year of operations was 2019. The company has a 30% tax rate and the management decided to use
accelerated depreciation for tax purposes and the straight-line method for financial reporting purpose. The amount
charged to depreciation expense in 2019 was P3,000,000. Assuming no other temporary difference existed between
book income and taxable income, what amount did Manzano deduct for depreciation on its tax return for 2019?
A 3,575,000 B. 3,201,250 C. 3,000,000 D. 2,425,000
.

104) The books of Mataban Company for the year ended December 31, 2019 showed the income before provision for
income tax of P1,800,000. In computing the taxable income for the income tax purposes, the following timing differences
were taken into account:
Depreciation deducted for tax purposes in excess of depreciation recorded in the books 80,000
Income from installment sales reportable for tax purposes in excess of income recognized in the books 60,000

What should Mataban record as its current income tax liability at December 31, 2019 assuming a corporate income tax
rate of 30%?
A 582,000 B. 546,000 C. 540,000 D. 534,000
.

105) Megano Company’s income statement for the year ended December 31, 2019, shows pretax income of P2,000,000.
The following items were treated differently on the tax return and in the accounting records:

Tax Return Accounting Records

Rent revenue 140,000 240,000
Depreciation expense 560,000 440,000
Premium on officer’s life insurance 0 180,000
Assume that Megano’s tax rate for 2019 is 30%. What is the amount of income tax payable for 2019?
A 660,000 B. 648,000 C. 588,000 D. 534,000
.
Use the following information for the next five (5) questions:
The following data pertain to the NOZOMI COMPANY.
 At December 31, 2021, the company has a P900,000 liability reported for estimated litigation claims. This P900,000
balance represents amounts that have been charged to income but not tax deductible until they are paid. The company
expects to pay the claims and this have tax deductible amounts in the future in the following manner:
2024 – P150,000 2025 – P690,000 2026 – P60,000
 The company uses different depreciation methods for financial reporting and tax purposes. Consequently, at December
31, 2021, the company has a cumulative temporary difference due to depreciable property of P2,400,000. This
P2,400,000 cumulative temporary difference is to result in taxable amounts in future years in the following manner:
2022 – P480,000 2023 – P480,000 2024 – P480,000 2025 – P480,000 2026 – P480,000
 The income tax rate is 30%.
 Taxable income for 2021 is P2,400,000. The company expects to report taxable income for the next five years.
 No temporary differences existed at the end of 2020.

106) The deferred tax liability to be reported in NOZOMI’s statement of financial position at December 31, 2021 is
A 720,000 B. 480,000 C. 450,000 D. 270,000
.

107) The deferred tax asset to be reported in NOZOMI’s statement of financial position at December 31, 2021 is
A 720,000 B. 450,000 C. 270,000 D. 150,000
.

108) The amount of current income tax payable to be reported in NOZOMI’s statement of financial position at December
31, 2021 is
A 720,000 B. 630,000 C. 546,000 D. 540,000
.

109) NOZOMI’s pretax accounting income for 2021 is

A 3,900,000 B. 2,874,000 C. 2,400,000 D. 900,000
.

110) NOZOMI’s net income for 2021 is

A 4,350,000 B. 3,630,000 C. 2,730,000 D. 1,230,000
.

Use the following information for the next two (2) questions:
Saito, Inc. in its first year of operations, has the following differences between the carrying amount and tax base of its assets
and liabilities at the end of 2021:
Carrying Amount Tax Base
Equipment (net) 800,000 680,000
Estimated warranty liability 400,000 0

Saito estimates that the warranty liability will be settled in 2022. The difference in equipment (net) will result in taxable
amounts as shown below:
2022 – P40,000 2023 – P60,000 2024 – P20,000
The company has taxable income of P1,04,000 for 2021. The income tax rate is 30%.

111) What amount of deferred tax liability should be reported in Saito’s statement of financial position at December 31,
2021?
A 84,000 B. 36,000 C. 30,000 D. 24,000
.

112) What amount of deferred tax asset should be reported in Saito’s statement of financial position at December 31,
2021?
A 156,000 B. 120,000 C. 84,000 D. 0
.

113) What is the amount of income tax payable (current) to be reported in Saito’s statement of financial position at
December 31, 2021?
A 396,000 B. 312,000 C. 228,000 D. 156,000
.
114) What is the total income tax expense for 2021?
A 396,000 B. 348,000 C. 228,000 D. 192,000
.
Use the following information for the next four (4) questions:
Qiqil Company reported net income for the current year 2019 at P5,000,000 before taxes. Included in the determination of
the said net income were:
Permanent differences:
Non-deductible expenses 150,000
Non-taxable income 50,000
Temporary differences at the beginning of the year:
Cumulative temporary difference creating future deductible amount 1,200,000
Cumulative temporary difference creating future taxable amount 800,000

Temporary differences at the end of the year:

Cumulative temporary difference creating future deductible amount 1,600,000
Cumulative temporary difference creating future taxable amount 500,000
The income tax rate is 40% and is not expected to change in the future.

115) How much is the current tax expense?

A 2,320,000 B. 2,040,000 C. 2,000,000 D. 1,650,000
.
116) How much is the total tax expense?
A 2,320,000 B. 2,040,000 C. 2,000,000 D. 1,650,000
.
117) What is the total deferred tax asset to be presented in the 2019 statement of financial position?
A 640,000 B. 480,000 C. 320,000 D. 200,000
.
118) What is the total deferred tax liability to be presented in the 2019 statement of financial position?
A 640,000 B. 480,000 C. 320,000 D. 200,000
.

Use the following information for the next five (5) questions
Faustino Company has the following information from its comparative financial statements.
2022 2021
Trade accounts receivable from service revenue 6,000,000 4,800,000
Prepaid insurance 480,000 400,000
Building – net of accumulated depreciation 36,000,000 38,000,000
Estimated liability for warranty obligation 1,200,000 1,120,000

Additional information:
 Faustino recognizes revenues from service fee as services are rendered but are taxed only when cash is collected. Total
collections in 2022 amounted to P3,200,000.
 The prepaid insurance account pertains to the unexpired portion of life insurance premiums taken on the life of key
personnel. Faustino is the irrevocable beneficiary of the insurance policy. Total premiums paid in 2022 were P200,000.
 The building was acquired on January 1, 2021 and is depreciated over an estimated useful life of 20 years with no
residual value. The straight line method of depreciation is used for financial reporting while the double declining balance
method is used for taxation.
 Warranty expense is recognized at the time goods are sold but are tax deductible only when actually paid. Tax
deductible warranty expense for 2022 amounted to P160,000.
 Pretax income in 2022 is P4,000,000. Income tax rate is 30%.

119) How much is the deferred tax asset as of December 31, 2021?
A 336,000 B. 284,000 C. 341,000 D. 893,000
.

120) How much is the deferred tax liability as of December 31, 2021?
A 1,480,000 B. 2,040,000 C. 1,490,000 D. 1,520,000
.

121) How much is the deferred tax asset as of December 31, 2022?
A 360,000 B. 480,000 C. 479,000 D. 240,000
.
122) How much is the deferred tax liability as of December 31, 2022?
A 3,000,000 B. 2,880,000 C. 1,800,000 D. 1,080,000
.

123) How much is the income tax expense for 2012?

A 1,880,000 B. 1,479,000 C. 1,420,000 D. 1,236,000
.

124) For the year ended December 31, 2021, Garcia Company reported pretax financial statement income of P750,000.
Its taxable income was P650,000. The difference is due to accelerated depreciation for income tax purposes. Garcia’s
effective income tax rate is 30%, and Garcia made estimated tax payments during 2021 of P90,000. What amount
should Garcia report as current income tax expense for 2021?
A 225,000 B. 195,000 C. 135,000 D. 105,000
.

125) The current liabilities of an entity include fines and penalties for environmental damage. The fines and penalties are
stated at P10 million. The fines and penalties are not deductible for tax purposes. What is the tax base of the fines and
penalties?
A 13 million B. 10 million C. 3 million D. 0
.
Use the following information for the next five (5) questions:
Acierto Company reported net income for the current year 2019 at P10,000,000 before taxes. Included in the determination
of the said net income were:
Permanent differences
Non deductible expenses P 100,000
Non taxable income 500,000
Temporary differences
Accrued warranty expenses 250,000
Rental payments made in advance 400,000
Advance collections from customers 500,000
Provision for probable losses 900,000
Income tax rate is 40% and is not expected to change in the future.

126) How much is the current tax expense?

A 4,340,000 B. 4,000,000 C. 3,840,000 D. 3,340,000
.
127) How much is the total tax expense?
A 4,340,000 B. 4,000,000 C. 3,840,000 D. 3,340,000
.
128) What is the total deferred tax asset to be presented in the 2019 statement of financial position?
A 660,000 B. 460,000 C. 360,000 D. 160,000
.
129) What is the total deferred tax liability to be presented in the 2019 statement of financial position?
A 660,000 B. 460,000 C. 360,000 D. 160,000
.
130) Assuming that the expected income tax rate for the following year is 35%, what is the total tax expense?
A 4,777,500 B. 4,340,000 C. 3,902,500 D. 3,340,000
.

131) Tubig Corporation began operations on January 1, 2020. For financial reporting, Tubig recognizes revenue from all
sales under the accrual method. However, in its income tax returns, Tubig reports qualifying sales under the installment
method. Tubig’s gross profit on these installment sales under each method was as follows:
Year Accrual Method Installment Method
2020 P1,600,000 P 600,000
2021 2,600,000 1,400,000

The income tax rate is 30% for 2020 and future years. There are no other temporary or permanent differences. In its
December 31, 2021 balance sheet, what amount should Tubig report as liability for deferred income taxes?
A 660,000 B. 360,000 C. 300,000 D. 0
.

132) The Salcedo Company purchased a building in January 2022 for P150,000. The accounting depreciation charge is
5% straight-line. For tax purposes, depreciation of 2% straight-line is deducted annually. The remaining cost will be
deducted in future periods, either as depreciation or through a deduction on disposal. The tax rate is 25%. What should
be the deferred tax balance at December 31, 2022?
A 4,500 DTA B. 4,500 DTL C. 3,375 DTA D. 3,375 DTL
.

133) Sapallada Co.’s 2021 income statement reported P90,000 income before provision for income taxes. To compute the
provision for current income tax, the following 2021 data are provided:

Rent received in advance 16,000

Income from exempt municipal bonds 20,000
Depreciation deducted for income tax purposes in excess of depreciation for financial statement purposes 10,000
Enacted corporate income tax rate 30%
What amount of current income tax liability should be reported in Sapallada’s December 31, 2021, balance sheet?
A 28,800 B. 25,800 C. 22,800 D. 18,000
.
134) On January 2, 2021, Gammad Company purchased a machine for P70,000. This machine has a 5-year useful life, a
residual value of P10,000, and is depreciated using the straight-line method for financial statement purpose. For tax
purposes, depreciation expense was P25,000 for 2021 and P20,000 for 2022. Gammad 2022 income, before income
taxes and depreciation expense, was P100,000 and its tax rate was 30%. If Gammad had made no estimated tax
payments during 2022, what amount of current income tax liability would Gammad report in its December 31, 2022,
balance sheet?
A 26,400 B. 25,800 C. 24,000 D. 22,500
.

Use the following information for the next two (2) questions:
The following information was provided to you by Shackles Company:
Book Value Tax Base
Receivable 150,000 200,000
Building – net 300,000 100,000
Machinery and equipment – net 500,000 550,000
Unearned revenue 100,000 ---
Estimated warranty obligation 80,000
Current and future tax 30%. Taxable income for the year P300,000.

135) Deferred tax asset

A 90,000 B. 84,000 C. 60,000 D. 30,000
.
136) Deferred tax liability
A 90,000 B. 84,000 C. 60,000 D. 30,000
.

137) Crippling Slugs Company reported current tax expense of P5,000,000 for 2020. The changes in assets and liabilities
are as follows:
December 31, 2020 December 31, 2019
Deferred tax asset 1,000,000 800,000
Deferred tax liability 450,000 600,000
Income tax payable 500,000 200,000

The deferred tax liability was caused by accelerated depreciation and the deferred tax asset is for rentals received in
advance. What amount of total tax expense should be recognized in 2020?
A 4,650,000 B. 4,950,000 C. 5,350,000 D. 5,650,000
.

138) Demonic Shield Company prepared the following reconciliation for the first year of operations:
Pretax financial income for 2019 9,000,000
Tax-exempt interest revenue (750,000)
Temporary difference (2,250,000)
Taxable income 6,000,000

The temporary difference will reverse evenly in 2020 and 2021 at an enacted tax rate of 35% in 2020, and 32% in 2021.
The tax rate for 2019 is 30%. What amount should be reported as deferred tax asset or liability on December 31, 2019?
A 720,000 DTA B. 753,750 DTA C. 720,000 DTL D. 753,750 DTL
.

139) Lethal Range Company reported P9,000,000 income before provision for income tax. The following data are provided
for the current year:
Rent received in advance 1,600,000
Income from exempt municipal bonds 2,000,000
Depreciation deduction for income tax purposes in excess of depreciation for financial reporting purposes 1,000,000
Estimated tax payment for current year 500,000
Enacted corporate income tax rate 30%

What amount of current income tax liability should be reported at year-end?

A 1,780,000 B. 2,280,000 C. 2,580,000 D. 2,880,000
.

140) On January 1, 2021, Kitty Company does not have any temporary differences. However, during the year, Kitty
identified that temporary differences may result from a warranty expense of P480,000 that was recognized for financial
 reporting during 2021. For taxation purposes, warranty expense is tax deductible only when paid. Warranty costs paid
during the year totaled P200,000. It is expected that the remaining accrued warranty costs will be paid as follows:
P160,000 in 2022 and P120,000 in 2023. Income tax rate for 2021 is 30%. However as of December 31, 2021, a new
tax law was enacted. Under the new law, tax rate for 2022 is 32% and tax rate in 2023 and years thereafter is 35%.
How much is the deferred tax asset as of December 31, 2021?
A. 93,200 B. 86,400 C. 51,200 D. 42,000

141) For the year 2021, Meowski Company reported income tax expense of P110,000. Income tax payable at the end of
2020 was P90,000 and at the end of 2021 was P100,000. The deferred tax liability that resulted from the use of
accelerated depreciation for tax purposes and the straight-line method for financial reporting purposes increased from
P105,000 at the beginning of 2021 to P130,000 at the end of 2021. How much cash was paid for income taxes during
the year?
A. 105,000 B. 95,000 C. 85,000 D. 75,000

142) The accountant of Feline Corporation has been regularly filing the entity’s quarterly income tax return. However,
differences between the taxable income and financial income are accounted for at year-end. For the year ended
December 31, 2021, Feline Corporation reported pretax financial income of P5,000,000. Included in the pretax financial
income was P900,000 of non-taxable life insurance received as a result of an officer; P1,200,000 of warranty expense
accrued but unpaid as of December 31, 2021; and P200,000 of impairment loss in goodwill.

Income tax rates is 30% for all years. Income taxes paid up to the 3rd quarter of 2021 amounted to P928,000. What is
the amount of income taxes payable at December 31, 2021?
A. 1,650,000 B. 1,290,000 C. 722,000 D. 362,000

Use the following information for the next two (2) questions
Wildcat Company reported the following carrying amount of asset and liabilities at year-end:
Property 10,000,000
Plant and equipment 5,000,000
Inventory 4,000,000
Trade receivable 3,000,000
Trade payable 6,000,000
Cash 2,000,000

The value for tax purposes for property and for plant and equipment was P7,000,000 and P4,000,000, respectively. The
entity has made a provision for inventory obsolescence of P2,000,000 which is not allowable for tax purposes.

Further, an impairment loss against trade receivables of P1,000,000 has been made. This charge will not be allowed in the
current year for tax purposes. The tax rate is 30%.

143) What is the deferred tax liability at year-end?

A. 4,000,000 B. 3,000,000 C. 2,100,000 D. 1,200,000

144) What is the deferred tax asset at year-end?

A. 900,000 B. 600,000 C. 300,000 D. 0

145) Francis Company began operations on January 1, 2020. For financial reporting, the entity recognized revenue from all
sales under the accrual method. However, in the income tax return, the entity reported under installment method. The
gross profit on these installments sales under each method was as follows:
Accrual method Installment method
2020 1,600,000 600,000
2021 2,600,000 1,400,000

The income tax rate is 30% for 2020 and future years. There are no other temporary or permanent differences. On
December 31, 2021, what amount should be reported as deferred tax liability?
A 840,000 B. 660,000 C. 600,000 D. 360,000
.

ANSWER: B
Accrual method Installment method
2020 1,600,000 600,000
2021 2,600,000 1,400,000
Total 4,200,000 2,000,000
 Cumulative balance of taxable temporary 4.2M – 2M 2,200,000
Tax rate 30%
DTL 660,000

146) Jackie Company reported pretax financial income of P7,500,000 for the current year. The taxable income was
P6,500,000 for the current year. The difference is due to accelerated depreciation for income tax purpose. The income
tax rate is 30% and the entity made estimated tax payment of P900,000 during the current year. What amount should be
reported as current tax expense for the current year?
A 1,050,000 B. 1,950,000 C. 1,350,000 D. 2,250,000
.

147) Jamaica Company reported pretax accounting income of P6,000,000 for the current year. The taxable income was
P7,000,000. The difference is due to rental received in advance. Rental income is taxable when received. The income
tax rate is 30% and the entity made no estimated tax payment in the current year. What amount should be reported as
total income tax expense for the current year?
A 2,100,000 B. 1,800,000 C. 1,100,000 D. 1,000,000
.

Use the following information for the next two (2) questions:
At the end of the first year of operations, Beatrice Company had taxable temporary differences totaling P3,000,000. Of this
total, P500,000 relates to current items. The entity also had deductible temporary differences totaling P1,000,000,
P250,000 of which relates to current items. Pretax financial income for the current year was P20,000,000. The tax rate is
30%.

148) What amount should be reported as current tax expense for current year?
A 5,925,000 B. 6,000,000 C. 6,600,000 D. 5,400,000
.

149) What is the net deferred tax expense or benefit for the current year?
A 900,000 expense B. 300,000 benefit C. 600,000 expense D. 600,000 benefit
.

150) Jenna Company was organized on January 1, 2020. The entity had pretax accounting income of P5,000,000 and
taxable income of P7,000,000 for the current year. The only temporary difference is accrued product warranty cost that
is expected to be paid in 2021. The enacted tax rates are 30% for 2020 and 25% for 2021 and thereafter. What amount
should be reported as total income tax expense in the income statement for 2020?
A 1,500,000 B. 2,100,000 C. 1,250,000 D. 1,600,000
.

ANSWER: D
Current tax expense 7,000,000 x 30% 2,100,000 E
Deferred tax benefit (2,000,000 x 25%) 500,000 B
Total tax expense 1,600,000 E

151) On December 31, 2020, Sharra Company reported a deferred tax liability of P600,000 and a deferred tax asset of
P150,000. On December 31, 2021, the deferred tax liability is P900,000 and the deferred tax asset is zero. What is the
deferred tax expense for 2021?
A 300,000 B. 450,000 C. 150,000 D. 900,000
.

152) Stronger Corporation leased a building and received the P36,000 annual rental payment on June 15, 2021. The
beginning of the lease was July 1, 2021. Rental income is taxable when received. Stronger’s tax rates are 30% for 2021
and 40% thereafter. Stronger had no other permanent or temporary differences. Stronger determined that no valuation
allowance was needed. What amount of deferred tax asset should Stronger report in its December 31, 2021 statement
of financial position?
A 5,400 B. 7,200 C. 10,800 D. 14,400
.

ANSWER: B
Rent income recognized 36,000 x 6/12 18,000
Rent taxable 36,000
Deductible temporary 18,000
Future tax rate 40%
Deferred tax asset 7,200
Use the following information for the next two (2) questions:
Friday Company, in its first year of operations, had the following differences between carrying amount and tax base of assets
and liabilities at December 31, 2018:
Carrying amount Tax base
Equipment 4,000,000 3,500,000
Warranty liability 1,500,000 0
The warranty liability will be settled in 2019. The difference in equipment will reverse in amounts of P200,000, P200,000 and
P100,000 for years 2019, 2020 and 2021 respectively. The financial income for 2018 is P5,500,000 and the tax rate is 30%
for the years 2018-2020 and 25% for 2021. It is probable that the entity will report taxable income in the future periods.

153) What is the current tax expense for 2018?

A 1,950,000 B. 1,625,000 C. 1,350,000 D. 1,500,000
.
154) What is the total tax expense for 2018?
A 1,645,000 B. 1,650,000 C. 1,625,000 D. 2,200,000
.

ANSWER: A, A
Accounting Income 5,500,000
Permanent differences:
Non Taxable Income ---
Non Deductible Expense --- ---
Accounting Income subject to tax 5,500,000 x% 1,645,000 E Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( + ) 1,500,000 30% 450,000 B Increase in DTA ( benefit )
Taxable Temporary ( - ) (200,000) 30% 60,000 E Increase in DTA ( benefit )
Taxable Temporary ( - ) (200,000) 30% 60,000 E Increase in DTA ( benefit )
Taxable Temporary ( - ) (100,000) 25% 25,000 E Increase in DTL ( expense )
Total --- 1,000,000 % 305,000 B 305,000 B Deferred Tax Expense (Benefit)
Taxable Income 6,500,000 30% 1,950,000 E Current Tax Expense

155) An entity has spent P600,000 in developing a new product. These costs meet the definition of an intangible asset
under PAS 38 and have been recognized in the statement of financial position. These costs have been recognized as an
expense for tax purposes. At the year-end the intangible asset is deemed to be impaired by P50,000. The tax base of
the intangible asset at year end is
A 600,000 B. 550,000 C. 50,000 D. 0
.

156) Bersarino Limited has an asset which cost P300,000 and against which depreciation of P100,000 has accumulated.
The accumulated depreciation for tax purposes is P180,000 and the company tax rate is 30%. Which statement is
correct?
A. The tax base of the asset is P180,000.
B. The entity has a taxable temporary difference of P120,000.
C. The entity should recognized deferred tax asset of P36,000.
D. The entity should recognize deferred tax liability of P24,000.

ANSWER: D
A – is false, the tax base should be P120,000 (300,000 – 180,000).
B – is false, the taxable temporary difference should be P80,000 (CA of 200,000 – TB of 120,000).
C – is false, DTL will arise from taxable temporary not DTA.
D – is true, taxable temporary of P80,000 x 30% = P24,000.

157) On April 1, 2023, the company rate of income tax was changed from 35% to 30%. At the previous date (June 30,
2022) Puto Company had the following tax balances:
Deferred tax assets 26,250
Deferred tax liabilities 21,000

What is the impact of the tax rate change on income tax expense?
A Increase P750 B. Decrease P750 C. Increase P875 D. Decrease P875
.

ANSWER: A
Deferred tax asset at 35% 26,250
Deferred tax asset at 30% (26,250 / 35%) x 30% 22,500
Decrease in DTA or deferred tax expense 3,750

Deferred tax liabilities at 35% 21,000

Deferred tax liabilities at 30% (21,000 / 35%) x 30% 18,000
Decrease in DTL or deferred tax benefit 3,000
Decrease in DTA or deferred tax expense 3,750
Net deferred tax expense due to change in TR 750

158) The following differences enter into the reconciliation of financial income and taxable income of One Click Company
for the year ended December 31, 2021, its first year of operations.
Accounting profit 4,500,000
Excess tax depreciation 3,000,000
Litigation accrual 450,000
Unearned rent income deferred on the books but appropriately recognized in taxable income 250,000
Interest income from long-term certificate of deposit 100,000

Additional information:
 Excess tax depreciation will reverse equally over a four-year period, 2022-2025.
 It is estimated that the litigation liability will be paid in 2025.
 Rent income will be recognized during the last year of lease, 2025.
 Interest income from long-term certificate of deposit is tax exempt.
 Tax rate is 35%

What is the current income tax expense for 2021?

A 735,000 B. 647,500 C. 560,000 D. 770,000
.

ANSWER: A
Accounting Income 4,500,000
Permanent differences:
Non Taxable Income (100,000)
Non Deductible Expense --- (100,000)
Accounting Income subject to tax 4,400,000
Temporary Differences (current
year):
Taxable Temporary ( – ) (3,000,000)
Deductible Temporary ( + ) 450,000
Deductible Temporary ( + ) 250,000
Total --- (2,300,000)
Taxable Income 2,100,000 35% 735,000 Current Tax Expense

159) At December 31, 2021, Torpedo Corporation’s taxable profit is P5,000,000. The following items are the temporary
differences that caused Torpedo’s income in the income tax return to differ from the amount reported in the income
statement: future deductible amounts expected to reverse in 2022 of P400,000 and future taxable amounts expected to
reverse in 2022 and 2023 of P500,000 and P900,000, respectively. Torpedo’s income tax rate is 35%. The income tax
expense reported by Torpedo in its December 31, 2021 income statement is
A 2,100,000 B. 1,400,000 C. 1,750,000 D. 1,785,000
.

ANSWER: A
Accounting Income subject to tax SQUEEZE 6,000,000 35% 2,100,000 Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( + ) 400,000 % --- Increase in DTA ( benefit )
Taxable Temporary ( – ) (1,400,000) % --- Increase in DTL ( expense )
Total --- (1,000,000) % --- --- Deferred Tax Expense (Benefit)
Taxable Income 5,000,000 % --- Current Tax Expense

160) On its December 31, 2021 statement of financial position, Magda Company has income tax payable of P260,000 and
a deferred tax asset of P400,000. Magda had reported a deferred tax asset of P300,000 at December 31, 2020. No
estimated tax payments were made during 2021. At December 31, 2021, Magda determined that it was probable that
the deferred tax asset would be realized. In its 2021 income statement, what amount should Magda report as total
income tax expense?
A 260,000 B. 150,000 C. 170,000 D. 160,000
 .

ANSWER: D
Current tax expense (equal to the amount of increase in income tax payable account) 260,000 E
Deferred tax benefit (equal to amount of increase of DTA) 100,000 B
Income tax expense 160,000 E

161) The tax return of Jayree Company indicates taxable profit of P15,000,000 on which a tax liability of P5,250,000 has
been recognized. Following is a list of items that may be required to determine accounting profit from the amount of
taxable profit.

Accelerated depreciation for income tax purposes was P2,000,000 and straight line financial depreciation P1,500,000.
Insurance premium of P100,000 on an office with Jayree as beneficiary was not included as a deduction in the tax
return. Interest on treasury bills was not included in the tax return. During the year, Jayree received P2,500,000 on
these investments. What was Jayree Company’s accounting profit?
A 15,500,000 B. 17,400,000 C. 18,000,000 D. 17,900,000
.

ANSWER: D
Accounting Income SQUEEZE 17,900,000
Permanent differences:
Non Taxable Income (2,500,000)
Non Deductible Expense 100,000 (2,400,000)
Accounting Income subject to tax 15,500,000
Temporary Differences (current year):
Taxable Temporary ( – ) (500,000)
Taxable Income 15,000,000

Use the following information for the next four (4) questions:
Rosario Company reported the following information during the first year of operations:
Pretax financial income 8,000,000
Nontaxable interest received 250,000
Long term loss accrual in excess of deductible amount 500,000
Tax depreciation in excess of financial depreciation 1,250,000
Income tax rate 30%

162) What is the current tax expense?

A 2,325,000 B. 2,100,000 C. 2,400,000 D. 1,950,000
.

163) What is the total tax expense?

A 2,400,000 B. 2,325,000 C. 2,100,000 D. 2,175,000
.

164) What is the deferred tax liability at year end?

A 150,000 B. 225,000 C. 375,000 D. 525,000
.

165) What is the deferred tax asset at year end?

A 150,000 B. 375,000 C. 225,000 D. 350,000
.

ANSWER: B, B, C, A
Accounting Income 8,000,000
Permanent differences:
Non Taxable Income (250,000)
Non Deductible Expense --- (250,000)
Accounting Income subject to tax 7,750,000 30% 2,325,000 Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( + ) 500,000 30% 150,000 B Increase in DTA ( benefit )
Taxable Temporary ( – ) (1,250,000) 30% 375,000 E Increase in DTL ( expense )
Total --- (750,000) % --- 225,000 E Deferred Tax Expense (Benefit)
Taxable Income 7,000,000 30% 2,100,000 Current Tax Expense

Use the following information for the next three (3) questions:
Thor Company has the following carrying amounts at the end of its first year, December 31, 2022.
Property 10,000,000 Trade receivables 3,000,000
Plant and equipment 5,000,000 Trade payable 6,000,000
Inventory 4,000,000 Cash 2,000,000

An impairment charge against trade receivable of P1,500,000 has been made. This charge will not be allowed in the current
year for tax purposes. Thor Company has made a provision for inventory obsolescence of P200,000 which is not allowable
for tax purposes until realized. The value for tax purposes for property and for plant and equipment was P8,000,000 and
P4,000,000 respectively. The pretax income for 2022 was P4,500,000. Non-taxable revenues P300,000 while the non-
deductible expenses amounted to P100,000. The current and future tax rate is 30%

166) What is the income tax expense – current for 2022?

A 480,000 B. 900,000 C. 1,020,000 D. 1,080,000
.

167) What is the cumulative future taxable amount at December 31, 2022?
A 2,000,000 B. 3,000,000 C. 3,500,000 D. 3,700,000
.

168) What is the deferred tax asset in the non-current section of the December 31, 2022 balance sheet?
A 390,000 B. 450,000 C. 510,000 D. 810,000
.

169) Airah Company reported pretax financial income of P200,000 and taxable income of P150,000. The income tax rate is
30%. The difference is due to the following:
Interest on tax-exempt municipal bonds 70,000
Premium expense on keyman life insurance (20,000)
Total 50,000

What amount should be reported as current provision for income tax expense?
A 45,000 B. 51,000 C. 60,000 D. 66,000
.

ANSWER: A
Taxable income 150,000
Current tax rate 30%
Current tax expense 45,000

170) Margaret Alarcio Company reported P9,000,000 income before provision for income tax. To compute provision for
income tax, the following data are provided for 2018:
Rent received in advance 1,600,000
Income from exempt municipal bonds 2,000,000
Depreciation deduction for income tax purposes in excess of depreciation reported for financial
accounting purposes 1,000,000
Estimated tax payment for 2018 500,000
Enacted corporate income tax rate 30%

What amount of current tax liability should be reported on December 31, 2018?
A 1,780,000 B. 2,280,000 C. 2,580,000 D. 2,880,000
.

ANSWER: A
Permanent differences: 9,000,000
Non Taxable Income (2,000,000)
Non Deductible Expense --- (2,000,000)
Accounting Income subject to tax 7,000,000 % --- Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( + ) 1,600,000 % --- Increase in DTA ( benefit )
Taxable Temporary ( – ) (1,000,000) % --- Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( – ) Decrease in DTA ( expense )
Taxable Temporary ( + ) Decrease in DTL ( benefit )
Total --- 600,000 % --- --- Deferred Tax Expense (Benefit)
Taxable Income 7,600,000 30% 2,280,000 Current Tax Expense
Estimated tax payment made (500,000)
Income tax payable 1,780,000

171) Neil Justine Company reported that in the first year of operations the pretax financial income was P6,000,000. In
addition, the following differences existed:

Tax Return Accounting Records

Uncollectible accounts expense 200,000 250,000
Depreciation expense 800,000 500,000
Tax exempt interest revenue 0 150,000
The current year tax rate is 30% and the enacted rate for future year is 40%. What amount should be reported as total
expense in the income statement for the year?
A 1,755,000 B. 1,680,000 C. 1,800,000 D. 1,780,000
.

ANSWER: D
Accounting Income 6,000,000
Permanent differences:
Non Taxable Income (150,000)
Non Deductible Expense --- (150,000)
Accounting Income subject to tax 5,850,000 % --- Total Tax Expense
Temporary Differences (current
year):
Deductible Temporary ( + ) 50,000 40% 20,000 Increase in DTA ( benefit )
Taxable Temporary ( – ) (300,000) 40% 120,000 Increase in DTL ( expense )
Total --- (250,000) % --- --- Deferred Tax Expense (Benefit)
Taxable Income 5,600,000 30% 1,680,000 Current Tax Expense

(Increase in DTA = benefit) (Decrease in DTA = expense) 20,000 B

(Increase in DTL = expense) (Decrease in DTL = benefit) 120,000 E
Deferred tax expense/benefit 100,000 E
Current tax expense 1,680,000 E
Total tax expense 1,780,000 E