Problem 1
Scenario 1: DEF Corporation purchases equipment costing ₱500,000 on January 1, 2025. The equipment
is depreciated using the straight-line method over 5 years for financial reporting purposes, but
it is depreciated using the double-declining balance (DDB) method for tax purposes. The
income tax rate is 30%.
Scenario 2: JKL Corporation estimates warranty expenses for financial reporting purposes but deducts
actual warranty expenses for tax purposes. For 2025, the estimated warranty expense is
₱80,000, while actual payments amount to ₱50,000. The income tax rate is 20%.
Scenario 3: MNO Corporation holds equity investments that have appreciated in value by ₱300,000 as of
December 31, 2025. For financial reporting, the unrealized gain is included in other
comprehensive income, but it is not taxable until realized. The income tax rate is 35%.
Scenario 4: VWX Corporation incurs a net operating loss of ₱200,000 in 2025. Tax laws allow the company
to carry forward the NOL to offset future taxable income. The income tax rate is 20%.
Scenario 5: STU Corporation estimates bad debt expense at ₱50,000 for financial reporting purposes.
However, for tax purposes, bad debts are deductible only when they are written off. No
accounts were written off in 2025. The income tax rate is 30%.
Scenario 6: YZC Corporation holds equity investments that have declined in value by ₱150,000 as of
December 31, 2025. For financial reporting, the unrealized loss is recognized in other
comprehensive income, but for tax purposes, the loss is deductible only when realized. The
income tax rate is 25%.
REQUIRED: Journal entries for the years with supporting computations.
Problem 2
On December 31, 2024, the statement of financial position accounts of Multifaceted Company has the
same basis for accounting and tax purposes, except the following:
Carrying
Amount
Computer software cost 2,000,000
Equipment 8,000,000
Accrued liability-health care 1,000,000
In January 2024, the entity incurred cost of ₱3,000,000 in relation to the development of a computer
software product. Considering the technical feasibility of the product, this cost was capitalized and
amortized over 3 years for accounting purposes using straight line. However, the total amount was
expensed in 2020 for tax purposes.
The equipment was acquired on January 1, 2024 for ₱10,000,000. The useful life of the equipment is
5 years with no residual value. The equipment is depreciated using the straight line for accounting
purposes and double declining balance for tax purposes.
In January 2024, the entity entered into an agreement with employees to provide health care benefits.
The cost of such plan for 2024 was ₱1,000,000. This amount was accrued as expense in 2020 for accounting
purposes. However, health care benefits are deductible for tax purposes only when actually paid.
The pretax accounting income for 2024 is ₱6,500,000. The tax rate is 25% and there are no deferred
taxes on January 1, 2024.
REQUIRED: Journal entries for the years 2024 with supporting computations.
ACCOUNTING FOR INCOME TAX ABELARDO DELA CRUZ
Activity 14
Problem 3
Hasta La Vista Corporation provided the following information on December 31, 2024:
Carrying
Amount
Accounts receivable 3,000,000
Motor vehicles 3,030,000
Provision for warranty 280,000
Deposits received in advance 500,000
• The depreciation rates for accounting and taxation are 20% and 40%, respectively. The motor
vehicle was acquired the beginning of 2024 for ₱3,750,000 with residual value of ₱150,000.
• The deposits are taxable when received and warranty costs are deductible when paid.
• An allowance for doubtful accounts of ₱300,000 has been raised against accounts receivable for
accounting purposes but such accounts are deductible only when written off as uncollectible.
• The entity showed net income of ₱9,000,000 after tax in the income statement for 2024. The
income tax rate is 25% which is still to be recorded.
• There are no temporary differences at the beginning of the current year
REQUIRED: Journal entries for 2024 with supporting computations.
Problem 4
Wonderful Creation Company reported the following information relating to income before tax for
accounting purposes:
2021 3,000,000
2022 4,500,000
2023 6,000,000
2024 7,500,000
Income tax rate 25%
• In 2021, the entity recognized doubtful accounts of ₱150,000. Such accounts were considered
worthless or uncollectible in 2022.
• Analysis of the tax and book records disclosed ₱240,000 in unearned rent income on December
31, 2021 that has been recognized as taxable income in 2021 when the cash was received,
• Also, on December 31, 2021, estimated warranty cost of ₱540,000 had been recognized as
expense on the books in 2021 when the product sales were made but is not deductible for tax
purposes until paid. Additional warranty expenses were charged in 2022 and 2023 as provided
below.
• The unearned rent income on December 31, 2021 is realized and actual warranty payments and
additional provisions were made as follows:
Actual Additional
Rent income
warranty warranty
per book
payments provision
2021 60,000 30,000 -
2022 60,000 140,000 40,000
2023 60,000 345,000 50,000
2024 60,000 25,000 -
REQUIRED: Journal entries for 2021, 2022, 2023, and 2024 to record income tax expense and deferred
income tax arising from the temporary differences.
ACCOUNTING FOR INCOME TAX ABELARDO DELA CRUZ
Activity 14
ACCOUNTING FOR INCOME TAX ABELARDO DELA CRUZ
