f. Consider the information disclosed in Note 8 – Income Taxes to answer the following questions:
i. Using information in the first table of note 8 show the journal entry Zagg recorded for the income tax provision in the year 2012.
An income tax provision is an estimated amount that an individual or a corporation expects to pay for the current year. In this case for Zagg the total provision for the year 2012 is $17,686 and their total deferred taxes are $8,293 which makes their total provision $9390.
ii. Using the information in the table 3 of note 8 decompose the amount of “ net deferred income taxes” recorded in the income tax journal entry into its deferred income tax asset and deferred income tax liability components.
The total deferred tax asset for the year 2012 are $14,302 and deferred liabilities are $794 which makes total net deferred tax asset $13,508 for tax year 2012.
In 2012 Deferred Tax Assets are 6300 and tax liabilities are $1086 = $5214 deferred Net tax assets.
iii. The second table in the note 8 provides reconciliation of income taxes computed using the federal statutory rate (35%) to income taxes computed using Zagg Effective rate. Calculate ZAGG’s 2012 effective tax rate using the information provided in their income statement. What accounts for the difference between the statutory rate and ZAGG’s effective tax rate?
39.3% is the effective rate of ZAGG and it is due to other taxes and deductions. The way to calculate the effective rate is to take the $9393 which is the total tax provision and divide it by $23898 which is the total income before taxes you get 0.393045, which is roughly estimated to 39.3%. A possible reason for the difference between the statutory rate and ZAGG’s effective tax rate would be that the statutory tax rate is the tax that is imposed by law, where as the effective tax rate is the percentage of income that is taxed.
iv. According to the third table in Note 8 – Income Taxes, ZAGG had a net...