CHAPTER 22

DEFERRED TAXASSET AND LIABILITY

Problem 22-1

On June 30, 2023, Ank Company prepaid a P1,000,000 premium on an annual insurance
policy. The premium payment was a tax deductible expense in the current year cash basis
tax return.

The accrual basis income statement will report a P500,000 insurance expense in 2023 and
P500,000 in 2024. The income tax rate is 25%.

1. What amount should be reported as deferred tax liability on December 31.

2023?

Problem 22-2

Zambal Company reported depreciation of P2,500,000 in the tax retum for the current
year. However, the entity reported depreciation of 1,000,000 in the income statement.
The difference in depreciation is temporary difference that will reverse over time. The tax
rate is 25%.

1. What amount should be added to the deferred tax liability at year-end?

Problem 22-3

West Company leased a building and received P4,000,000 annual rental payment on June
15. 2023. The beginning of the lease was July 1, 2023 Rental income is taxable when
received. The income tax rate is 25%. The entity had no other permanent or temporary
differences.

1. What amount of deferred tax asset should be reported on December 31, 2023?
Problem 22-4

Boom Company prepared the following reconciliation of the financial income and
taxable income for 2024

Pretax financial income 6,000,000

Permanent difference (500,000)
Temporary difference-capitalized interest
for book and expensed for tax (200,000)
Taxable income 5,300,000

Cumulative taxable temporary differences amounted to P300,000 on December 31, 2023

and P500,000 on December 31, 2024. The income tax rate is 25%.

1. What amount should be reported as deferred tax liability on December 31,

2024?

Problem 22-5

Thor Company reported the following tax effects of temporary differences at year-end:

Deferred tax asset (liability) Related asset

classification

Accelerated tax depreciation (75,000) Noncurrent

Current
Additional cost in inventory for tax 25,000 current

The entity anticipated that P10,000 of the deferred tax liability will reverse next year.

1. What amount should be reported as noncurrent deferred tax liability at year-

end?

Problem 22-6

Aries Company reported a deferred tax asset of P9,000 on December 31, 2023. The entity
reported pretax financial income of P300,000 for 2024. On December 31, 2024, the entity
had cumulative taxable differences of P70,000 and no cumulative deductible differences.
The income tax rate is 25%.

1. What amount should be reported as deferred tax expense for 2024?

Problem 22-7
On December 31, 2023, Bolton Company reported a deferred tax liability of P1,000,000
and a deferred tax asset of P400,000. On December 31, 2024, the entity reported a
deferred tax liability of P1,500,000 and a deferred tax asset of zero.

1. What amount should be reported as deferred tax expense for 2024?

Problem 22-8
Shear Company began operations in the current year. Included in the current year
financial income were bad debt expense of P400,000 and income from an installment sale
of P1,000,000. For tax purposes, the bad debt expense and the income from the
installment sale are recognized next year. The income tax rate is 25%.

1. What amount should be reported as deferred tax expense in the income

statement for the current year?

Problem 22-9
Canterbury Company had one temporary differenceat the end of 2023 that will reverse
and cause taxable amounts of P1.100.000 in 2024. P1,200,000 in 2025 and P1,200,000 in
2026. The entity had also a deductible temporary difference of P 1,500,000.
The pretax accounting income for 2023 is P6,000,000 and the tax rate is 25%. There are
no deferred taxes at the beginning of 2023.

1. What amount should be reported as current tax expense for 2023?

2. What amount should be reported as net deferred tax expense for 2023?.
Problem 22-10
Highland Company had cumulative future taxable amount on January 1,2023 and
December 31, 2023 of P2,500,000. The difference way expected to reverse P1,500,000 in
2024 and P1,000,000 in 2025. The related deferred tax liability on January 1, 2023 was
P750,000.
During 2023, a new tax rate of 25% is enacted into law and is scheduled to be effective in
2025. The taxable income for 2023 was P4.500.000.

1. What amount of defered tax liability should be reported on December 31,

2023?
2. What amount of total tax expense should be reported for 2023?

Problem 22-11
Chamber Company reported the following differences between the book basis and tax
basis of assets and liabilities on December 31, 2023 which is the end of the first year of
operations:

Carrying amount
Tax base
Installment accounts receivable 1,000,000
0
Litigation liability 200,000
0

The difference in accounts receivable will result in taxable amounts of P600,000 in 2024
and P400,000 in 2025. It is expected that the litigation liability will be settled in 2024.
The entity had a taxable income of P7,000,000 in 2023 and is expected to have taxable
income in each of the following two years. The income tax rate is 25%.

1. What amount should be reported as deferred tax expense?

2. What amount should be reported as total tax expense?
Problem 22-12

Zeff Company prepared the following reconciliation of pretax financial statement income
to taxable income for the first year of operations:

Pretax financial income 1,600,000

Nontaxable interest received (50,000)
Long-term loss accrual in excess of deductible amount 100,000
Depreciation in excess of financial depreciation (250,000)
Taxable income 1,400,000

Income tax rate 25%

1. What amount should be reported as current tax expense in the income

statement?
2. What amount should be reported as deferred tax liability at year-end?
3. What amount should be reported as deferred tax asset at year-end?
4. What amount should be reported as total tax expense?

Problem 22-13

Stabilizer Company reported taxable income of P8,000,000 in the income tax return for
the first year of operations. The enacted income tax rate is 25% for the current and future
years.

Temporary differences between financial income and taxable income for the year are:

Tax depreciation in excess of book depreciation

800,000
Accrual for product liability claim in excess of actual claim
1,200,000
 Reported installment sales income in excess of taxable installment sales income
2,600,000

1. What amount should be reported as deferred tax asset at year-end?

2. What amount should be reported as deferred tax liability at year-end?
3. What amount should be reported as net deferred tax expense for the current
year
4. What amount should be reported as total income tax expense for the current
year?

Problem 22-14

Lakeshore Company reported the following selected information for the current year:

Accounting income before tax 9,700,000

Intercst income on tax-exempt municipal bonds 350,000
Depreciation claimed on the tax return in excess of financial depreciation 500,000
Carrying amount of depreciable asset in excess of tax basis 800,000
Warranty expense reported on the income statement 200,000
Actual warranty expenditures 50,000
Income tax rate 25%

At the beginning of current year, the entity reported deferred tax asset at zero and
deferred tax liability at P75,000.

1. What amount should be reported as current tax expense for the current year?
2. What amount should be reported as total tax expense for the current year?
3. What amount should be reported as deferred tax liability at year-end?
4. What amount should be reported as deferred tax asset at year-end?

Problem 22-15
On December 31, 2023, Ultimate Company reported deferred tax liability of P500,000
and deferred tax asset of zero.
On December 31, 2024, it was determined that the cumulative future taxable and
deductible amounts were P3,500,000 and P500,000 respectively. The pretax financial
income was P5,000,000 for 2024. and the income tax rate is 25%.

1. What amount should be reported as current tax expense for 2024?

2. What amount should be reported as net deferred tax expense or benefit for
2024?
3. What amount should be reported as deferred tax liability on December 31,
2024?
4. What amount should be reported as deferred tax asset on December 31, 2024
5. What amount should be reported as total tax expense for 2024?