Determine the income tax expense

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Question - Unitroj Inc., reported pretax financial accounting income in 2011, 2012, 2013 and 2014 of $100 million. In 2011, Unitroj purchased a machine for $100 million with a useful life of five years. The machine is depreciated based on the straight line method and the double declining balance method for tax purposes. No other depreciable assets were acquired. The enacted tax rate is 40% per year. Also in 2011, Unitroj recorded warranty expense of $30 million with $16 million paid in 2012 and $15 million in 2013 for merchandise returned by customers. Magazine subscriptions of $20 million were received in 2011 and the company will deliver $15 million in 2012 and $5 million in 2013.

Compensation expense of $3 million related to employee stock option plans granted to organizers was reported in the 2011 income statement. In addition, Unitroj received $1 million each year in interest income from investments in municipal bonds.

REQUIRED:

• Determine the income tax expense for 2011 and 2012. Be sure to show supporting computations.

• Provide the appropriate journal entries to recognize income tax in 2011 and 2012.

• Provide proper financial statement disclosure of the deferred tax assets (if any) and deferred tax liabilities (if any) in Unitroj's income statement and balance sheet.

Reference no: EM132011073

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