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Exam 17: Accounting for Income Taxes

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Question 61

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Grand River Corporation reported pretax book income of $600,000. Included in the computation were favorable temporary differences of $150,000, unfavorable temporary differences of $90,000, and favorable permanent differences of $140,000. The corporation's current income tax expense or benefit would be:

A) $126,000 tax benefit.
B) $132,300 tax expense.
C) $113,400 tax benefit.
D) $84,000 tax expense.

E) None of the above
F) C) and D)

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Question 62

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Which of the following items is not a permanent book-tax difference?

A) Tax-exempt life insurance proceeds.
B) Nondeductible meals expense.
C) Accrued vacation pay liability not paid within the first two and a half months of the next tax year.
D) Excess tax benefits from the exercise of NQOs.

E) All of the above
F) A) and B)

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Question 63

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Stone Corporation reported pretax book income of $1,000,000. Tax depreciation exceeded book depreciation by $300,000. In addition, the reserve for bad debts decreased by $50,000. Stone had a net deferred tax asset of $34,000 at the beginning of the year, representing a net deductible temporary difference of $100,000. At the beginning of the tax year, Congress reduced the corporate tax rate from 34 percent to 21 percent. Compute the company's current and deferred income tax expense or benefit.

Farm Corporation reported pretax book loss of $500,000. Tax depreciation exceeded book depreciation by $100,000. In addition, Farm received prepaid income of $50,000, which was included on its tax return but was not included in the book loss.Farm Corporation had taxable income of $750,000 in the prior year. Compute the company's income tax expense or benefit.

Which of the following items does not result in a permanent difference?

Kedzie Company determined that the book basis of its liability for "other postretirement benefits" (OPEB) exceeded the tax basis of this account by $10,000,000. This basis difference is characterized as:

The focus of ASC 740 is on the income statement.

Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

Weber Corporation reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $300,000, and unfavorable permanent differences of $200,000. Compute the company's book equivalent of taxable income. Use this number to compute the company's total income tax provision or benefit.

Bruin Company received a $100,000 insurance payment on the death of its company president. The company annually paid $1,000 of nondeductible insurance premiums on the policy. Bruin reported the insurance receipt as income and deducted the premium payments on its books. For ASC 740 purposes, the income and deduction are characterized as:

Oriole Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $1,200,000. The unfavorable book-tax difference of $200,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $300,000 due to an increase in the reserve for bad debts, and a $100,000 unfavorable permanent difference from the disallowance of compensation expense related to the exercise of incentive stock options. a. Compute Oriole's current income tax expense. b. Compute Oriole's deferred income tax expense or benefit. c. Compute Oriole's effective tax rate. d. Provide a reconciliation of Oriole's effective tax rate with its hypothetical tax rate of 21 percent.

Which of the following statements best describes the objective(s) of ASC 740?

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

Costello Corporation reported pretax book income of $501,200. During the current year, the reserve for bad debts increased by $7,400. In addition, tax depreciation exceeded book depreciation by $41,200. Finally, Costello received $3,600 of tax-exempt life insurance proceeds from the death of one of its officers. Costello's deferred income tax expense or benefit would be:

Potential interest and penalties that would be assessed on a disallowed unrecognized tax benefit must be recorded in a company's income tax expense under ASC 740.

Costello Corporation reported pretax book income of $500,000. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, Costello received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Costello's deferred income tax expense or benefit would be:

Yellow Rose Corporation reported pretax book income of $100,000,000. Tax depreciation exceeded book depreciation by $100,000. During the year Yellow Rose capitalized $50,000 into ending inventory under §263A. Capitalized inventory costs of $75,000 in beginning inventory were deducted as part of cost of goods sold on the tax return. Compute Yellow Rose's taxes payable or refundable.

Which of the following book-tax basis differences results in a deductible temporary difference?

Marlin Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. Finally, Marlin subtracted a dividends received deduction of $15,000 in computing its current-year taxable income. Marlin's current income tax expense or benefit would be:

Swordfish Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. In prior years, tax depreciation exceeded book depreciation by a cumulative amount of $500,000. Finally, Swordfish subtracted a dividends received deduction of $15,000 in computing its current-year taxable income. Swordfish's deferred income tax expense or benefit would be: