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Exam 6: Accounting for Income Taxes

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Question 21

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Which of the following temporary differences creates a deferred tax liability?

A) Accumulated tax depreciation in excess of book depreciation on a building.
B) Accumulated tax amortization in excess of book amortization on a customer list.
C) Compensation expensed for book purposes but deferred for tax purposes.
D) Both accumulated tax depreciation in excess of book depreciation on a building and accumulated tax amortization in excess of book amortization on a customer list create a deferred tax liability.

E) A) and D)
F) A) and C)

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Question 22

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Which of the following items is not a temporary difference?

A) Vacation pay accrued for tax purposes in a prior period is deducted in the current period.
B) Tax depreciation for the period exceeds book depreciation.
C) A goodwill impairment expense is recorded on the income statement; the goodwill did not have a tax basis when it was created.
D) Bad debts charged off in the current period exceed the bad debts accrued in the current period.

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

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Question 23

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Gull Corporation reported pretax book income of $2,007,000. Included in the computation were favorable temporary differences of $302,100, unfavorable temporary differences of $201,400, and favorable permanent differences of $50,700. Compute Gull's current income tax expense or benefit.

Knollcrest Corporation has a cumulative book loss over the past 36 months. Which of the following statements best describes how this fact enters into the valuation allowance analysis?

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.

Jones Company reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000, unfavorable temporary differences of $20,000, and favorable permanent differences of $40,000. Book equivalent of taxable income is:

Irish Corporation reported pretax book income of $1,001,000. Included in the computation were favorable temporary differences of $300,300, unfavorable temporary differences of $100,100, and favorable permanent differences of $200,200. Compute Irish's book equivalent of taxable income. Use this number to compute the company's total income tax provision 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. Compute the company's income tax expense or benefit.

Marlin Corporation reported pretax book income of $1,016,000. During the current year, the net reserve for warranties increased by $28,200. In addition, book depreciation exceeded tax depreciation by $101,600. Finally, Marlin subtracted a dividends received deduction of $16,600 in computing its current-year taxable income. Marlin's current income tax expense or benefit would be:

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.

Packard Corporation reported pretax book income of $500,300. Included in the computation were favorable temporary differences of $10,300, unfavorable temporary differences of $100,300, and unfavorable permanent differences of $80,150. The corporation's current income tax expense or benefit would be:

Once determined, an unrecognized tax benefit under ASC 740 is not readjusted for subsequent events.

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:

The "current income tax expense or benefit" always represents just the taxes paid or refunded in the current year.

Which of the following statements about ASC 740 as it relates to uncertain tax positions is true?

A corporation evaluates the need for a valuation allowance by comparing both positive and negative evidence that the corporation will realize a deferred tax asset in the future.

Lafayette, Incorporated, completed its first year of operations with a pretax loss of $808,000. The tax return showed a net operating loss of $766,000. The $42,000 book-tax difference results from a disallowed deduction for business-related meals. Management has determined that they should record a valuation allowance equal to the net deferred tax asset. Prepare the journal entries to record the deferred tax provision and the valuation allowance.

A company's effective tax rate can best be described as:

Morgan Corporation determined that $1,550,000 of the research credit on its current-year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made the following assessment of the company's potential tax benefit from the credit and its probability of occurring. Under ASC 740, what amount of the tax benefit related to the research credit can Morgan recognize in calculating its income tax provision in the current year?

Which of the following groups does not issue rules that apply to accounting for income taxes?