1.
EMC
began operations during 2004. Taxable
income in 2005 was $829,000. Basis differences as of 12/31/04 and 12/31/05
are as follows:

Description
of difference 12/31/04 12/31/05

Property, Plant, & Equipment, net:

GAAP
basis $1,102,000 $1,880,000

Tax basis 1,000,000 1,800,000

Basis
difference $102,000 $80,000

Investments – Trading

GAAP
basis (fair value) $785,000 $823,000

Tax
basis (cost or amortized cost) 903,000 948,000

Basis
difference ($118,000) ($125,000)

The enacted income tax rate is 40% for 2004 and
all future years.

Requirement:

Prepare the income tax journal entries that EMC
should make for the year ended 12/31/05.

2.
For the current year ($ in
millions), Centipede Corp. had $80 in pretax accounting income. This included meals and entertainment expense
of $8 and $20 in depreciation expense.
For income tax purposes, MACRS depreciation amounted to $23.

1) What
type of differences, permanent differences or temporary differences, does
Centipede Corp. have for the current year?

2) Prepare
Centipede’s journal entry to recognize income taxes payable for the current
year. Assume there were no other temporary or permanent differences. Centipede’s tax rate for all relevant years
is 40%.

3) Centipede’s
comparative balance sheets for two previous years show the following balances
for deferred tax assets and liabilities:

12/31/06 12/31/05

Deferred
Tax Asset $3 million $1.4 million

Deferred
Tax Liability $6 million $4.8 million

Prepare Centipede’s deferred tax journal entry for the
year ended 12/31/06. Note that you do
not have enough information to determine how Centipede calculated its DTA and
DTL balances.

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