Kestrel: Reconciling the Tax Provision — سؤال دراسة حالة في المحاسب الإداري المعتمد

The case

Kestrel Imaging Components reports 20X8 pretax financial income of $780,000 AFTER all book income and expenses listed below. Its tax team uses the following facts to prepare the current and deferred tax provision.

Item	20X8 book and tax facts
Production equipment	Tax depreciation exceeds book depreciation by $64,000; this is the first year of the difference.
Product warranties	Book expense is $72,000; $24,000 of claims were paid and are deductible this year. The remaining liability is $48,000.
Advance service fee	$50,000 received in December is taxable immediately; no book revenue is recognized until services are performed in 20X9.
Qualifying public-security interest	$18,000 is included in book income and is permanently exempt from tax.
Regulatory fine	$12,000 is included in book expense and is never tax-deductible.

The enacted tax rate is 25% in all relevant years. All deferred tax balances begin at zero.

Assumptions

Apply US GAAP income tax accounting. The stated tax treatments are explicit exercise assumptions, not jurisdiction-specific tax advice.
There is sufficient future taxable income to realize all deductible temporary differences; no valuation allowance is required.
All listed deferred tax effects belong to the same tax-paying component and jurisdiction. There are no other differences, uncertain tax positions or tax credits.
For the warranty follow-up, assume every obligation associated with 20X8 sales has expired or been settled by December 31, 20X9.

What deferred tax effect does Kestrel's year-end warranty liability create in 20X8?

Answer An $18,000 deferred tax asset, based on all current-year warranty expense. A $12,000 deferred tax liability, because a liability appears on the balance sheet. A $12,000 deferred tax asset, reflecting deductions available when the remaining claims are paid. No deferred tax effect, because the cash payments already reduced taxable income.

By the end of 20X9, all warranty obligations on 20X8 sales have expired or been settled. Any remaining warranty liability relates to Origin of remaining obligations . The deferred tax balance attributable specifically to 20X8 sales is therefore Old sales' deferred tax balance . A deferred tax balance for new outstanding claims uses Applicable measurement rate .

What deferred tax amount arises from the $18,000 qualifying public-security interest?

Answer A $4,500 deferred tax asset, because current tax is reduced. Zero; the interest is never taxable, so no future reversal exists. A $4,500 deferred tax liability, because book income exceeds taxable income. An $18,000 deferred tax asset, equal to the excluded interest.

Select TWO items in Kestrel's case that create permanent book-tax differences.

Select two answers. Selected 0 / 2

Answer The regulatory fine included in book expense. The excess of tax depreciation over book depreciation on production equipment. The advance service fee received in December. The public-security interest included in book income. The unpaid portion of the warranty expense.

Classify six independent items under the stated tax rules. Tax depreciation ahead of book depreciation creates Accelerated tax depreciation . An accrued bonus deductible only when paid creates Accrued bonus . Revenue recognized in book income now but taxable only when collected creates Book revenue taxed on collection . Permanently exempt investment income creates Permanently exempt income . A customer advance taxed now but recognized as book revenue next year creates Taxed customer advance . A fine that can never be deducted creates Permanently nondeductible fine .

Calculate Kestrel's current income tax expense for 20X8. Begin with the $780,000 pretax financial income, which already includes all listed book items. Enter a positive amount in whole US dollars; no rounding is necessary.

Answer USD

A whole number.

Select THREE statements that correctly describe Kestrel's income tax accounting under the case assumptions.

Select 3 answers. Selected 0 / 3

Answer Permanent differences generate deferred tax assets whenever they reduce current tax. Deferred taxes are measured using enacted rates applicable when temporary differences reverse. Deferred tax balances are classified as noncurrent under US GAAP. Total income tax expense must always equal current tax payable. A valuation allowance is required if it is more likely than not that some portion of the deferred tax assets will not be realized.

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