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GAAP regarding accounting for income taxes requires the following procedure: |
Computation of deferred tax assets and liabilities based on temporary differences. |
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Which of the following causes a temporary difference between taxable and pretax accounting income? |
MACRS used for depreciating equipment. |
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Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax liability? |
Prepaid rent. |
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A result of inter-period tax allocation is that: |
The income tax expense in the income statement is the sum of the income taxes payable for the year and the changes in deferred tax asset or liability balances for the year. |
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Which of the following creates a deferred tax liability? |
Accelerated depreciation in the tax return. |
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Which of the following circumstances creates a future taxable amount? |
Straight-line depreciation for financial reporting and accelerated depreciation for tax reporting. |
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Which of the following usually results in an increase in a deferred tax liability |
Prepaid operating expenses, currently deductible. |
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For its first year of operations, Tringali Corporation’s reconciliation of pretax accounting income to taxable income is as follows: Pretax Acct income: $300000 Tringali’s tax rate is 40%. Assume that no estimated taxes have been paid. What should Tringali report as income tax payable for its first year of operations? |
$106,000. |
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For its first year of operations, Tringali Corporation’s reconciliation of pretax accounting income to taxable income is as follows: Pretax Acct income: $300000 Tringali’s tax rate is 40%. What should Tringali report as its deferred income tax liability as of the end of its first year of operations? |
$8,000. |
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For its first year of operations, Tringali Corporation’s reconciliation of pretax accounting income to taxable income is as follows: Pretax Acct income: $300000 Tringali’s tax rate is 40%. What should Tringali report as its income tax expense for its first year of operations? |
$114,000. |
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Isaac Inc. began operations in January 2013. For certain of its property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer’s installment payments. In 2013, Isaac had $600 million in sales of this type. Scheduled collections for these sales are as follows: 2013 : 60 million Assume that Isaac has a 30% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses what deferred tax liability would Isaac report in its years-end 2013 balance sheet? |
$162 million |
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Isaac Inc. began operations in January 2013. For certain of its property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer’s installment payments. In 2013, Isaac had $600 million in sales of this type. Scheduled collections for these sales are as follows: 2013 : 60 million Assume that Isaac has a 30% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2014 wht deferred tax libility would Isaac report in its year-end 2014 balance sheet? |
$126 million |
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Isaac Inc. began operations in January 2013. For certain of its property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer’s installment payments. In 2013, Isaac had $600 million in sales of this type. Scheduled collections for these sales are as follows: 2013 : 60 million Assume that Isaac has a 30% income tax rate and that there were no other differences in income for financial statement and tax purposes. Suppose that, in 2014, legislation revised the income tax rate so that Isaac would be taxed in 2015 and beyond at 40% rather than 30%. Assume that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sale in 2014, what deferred tax liability would Isaac report in its year-end 2014 balance sheet? |
$168 million |
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In the statement of cash flows, by using the indirect method for determining cash flows from operating activities, a decrease in deferred tax liabilities is: |
Subtracted from net income. |
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Which of the following statements is true as to GAAP regarding accounting for income taxes, and its use of the asset and liability approach? |
The approach is consistent with a balance sheet emphasis of U.S. GAAP and the International Financial Reporting Standards (IFRS). |
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The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): pretax acct income: $200 The applicable tax rate is 40%. There are no other temporary or permanent differences. Franklin’s taxable income is: |
$165 |
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The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): pretax acct income: $200 The applicable tax rate is 40%. There are no other temporary or permanent differences. Franklin experienced a current: |
Tax liability of $66 |
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The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): pretax acct income: $200 The applicable tax rate is 40%. There are no other temporary or permanent differences. Franklin’s net income is |
$118 |
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The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): pretax acct income: $200 The applicable tax rate is 40%. There are no other temporary or permanent differences. Which of the following must Franklin disclose related to the income tax espense reported in the income statement |
both the current portion of the tax expense of $66 and the deferred portion of the tax expense of $16 |
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The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): pretax acct income: $200 The applicable tax rate is 40%. There are no other temporary or permanent differences. Franklin’s balance sheet at the end of its first year would report: |
A deferred tax liability of $16 among noncurrent liabilities |
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Woody Corp. had taxable income of $8,000 in the current year. The amount of MACRS depreciation was $3,000, while the amount of depreciation reported in the income statement was $1,000. Assuming no other differences between tax and accounting income, Woody’s pretax accounting income was: |
$10,000. |
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Alamo Inc. had $300 million in taxable income for the current year. Alamo also had a decrease in deferred tax assets of $30 million and an increase in deferred tax liabilities of $60 million. The company is subject to a tax rate of 40%. The total income tax expense for the year was: |
$210 million. |
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During the current year, Stern Company had pretax accounting income of $45 million. Stern’s only temporary difference for the year was rent received for the following year in the amount of $15 million. Stern’s taxable income for the year would be: |
$60 million. |
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Information for Kent Corp. for the year 2013: Reconciliation of pretax accounting income and taxable income: pretax acct income: 180000 Cumulative future taxable amounts all from depreciation temporary differences: 2012: 13000 the enacted tax rate was 30% for 2012 and thereafter What should be the balance in Kent’s deferred tax liability account as of December 31, 2013? |
$7500 |
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Information for Kent Corp. for the year 2013: Reconciliation of pretax accounting income and taxable income: pretax acct income: 180000 Cumulative future taxable amounts all from depreciation temporary differences: 2012: 13000 the enacted tax rate was 30% for 2012 and thereafter what should Kent report as the current portion of its income tax expense in the year 2013? |
$45900 |
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Information for Kent Corp. for the year 2013: Reconciliation of pretax accounting income and taxable income: pretax acct income: 180000 Cumulative future taxable amounts all from depreciation temporary differences: 2012: 13000 the enacted tax rate was 30% for 2012 and thereafter What would Kent’s income tax expense be in the year 2013? |
$49500 |
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Of the following temporary differences, which one ordinarily creates a deferred tax asset? |
Accrued warranty expense. |
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Using straight-line depreciation for financial reporting purposes and MACRS for tax purposes in the first year of an asset’s life creates a: |
Deferred tax liability. |
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A deferred tax asset represents a: |
Future income tax benefit. |
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Of the following temporary differences, which one ordinarily creates a deferred tax asset? |
Rent received in advance. |
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Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset? |
Revenue collected in advance. |
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Which of the following creates a deferred tax asset? |
An unrealized loss from recording investments at fair value. |
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Which of the following circumstances creates a future deductible amount? |
Accrued warranty expenses. |
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Estimated employee compensation expenses earned during the current period but expected to be paid in the next period causes: |
An increase in a deferred tax asset. |
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A magazine publisher collects one year in advance for subscription revenue. In the year of providing the magazines to customers, the company would record: |
A decrease in a deferred tax asset. |
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In 2013, Magic Table Inc. decides to add a 36-month warranty on its new product sales. Warranty costs are tax deductible when claims are settled. In its financial statements for 2013, Magic Table Inc incurs: |
An increase in a deferred tax asset. |
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Which of the following usually results in an increase in a deferred tax asset? |
None of the above is correct. |
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At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A disclosure note reveals that the entire $400,000 will be earned in the next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a: |
Current deferred tax asset. |
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The valuation allowance account that is used in conjunction with deferred tax assets is a(n): |
Contra asset. |
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The valuation allowance account that is used in conjunction with deferred taxes relates: |
Only to deferred tax assets. |
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In 2012, HD had reported a deferred tax asset of $90 million with no valuation allowance. At December 31, 2013, the account balances of HD Services showed a deferred tax asset of $120 million before assessing the need for a valuation allowance and income taxes payable of $80 million. HD determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized. HD made no estimated tax payments during 2013. What amount should HD report as income tax expense in its 2013 income statement? |
$86 million. |
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For classification purposes, a valuation allowance: |
Is allocated proportionately between the current and noncurrent portions of the deferred tax asset. |
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If a company’s deferred tax asset is not reduced by a valuation allowance, the company believes it is: |
More likely than not that sufficient taxable income will be generated in future years to realize the full tax benefit. |
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Which of the following causes a permanent difference between taxable income and pretax accounting income? |
Interest income on municipal bonds. |
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In reconciling net income to taxable income, interest earned on municipal bonds is: |
A permanent difference. |
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Which of the following causes a permanent difference between taxable income and pretax accounting income? |
Interest earned on municipal securities. |
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Which of the following would never require reporting deferred tax assets or deferred tax liabilities? |
Life insurance premiums for the payer’s benefit. |
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When tax rates are changed subsequent to the creation of a deferred tax asset or liability, GAAP requires that: |
All deferred tax accounts be adjusted to reflect the new tax rates. |
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Pretax accounting income for the year ended December 31, 2013, was $50 million for Truffles Company. Truffles’ taxable income was $60 million. This was a result of differences between straight-line depreciation for financial reporting purposes and MACRS for tax purposes. The enacted tax rate is 30% for 2013 and 40% thereafter. What amount should Truffles report as the current portion of income tax expense for 2013? |
$18 million. |
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The financial reporting carrying value of Boze Music’s only depreciable asset exceeded its tax basis by $150,000 at December 31, 2013. This was a result of differences between straight-line depreciation for financial reporting purposes and MACRS for tax purposes. The asset was acquired earlier in the year. Boze has no other temporary differences. The enacted tax rate is 30% for 2013 and 40% thereafter. Boze should report the deferred tax effect of this difference in its December 31, 2013, balance sheet as: |
A liability of $60,000. |
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The effect of a change in tax rates: |
Is reflected in income from continuing operations. |
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Giada Foods reported $940 million in income before income taxes for 2013, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for 2013 was 35%, but the enacted rate for years after 2013 is 40%. The balance in the deferred tax liability in the December 31, 2013, balance sheet is: |
$40 million. |
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In its first year of operations, Woodmount Corporation reported pretax accounting income of $500 million for the current year. Depreciation reported in the tax return in excess of depreciation in the income statement was $60 million. The excess tax will reverse itself evenly over the next three years. The current year’s tax rate of 40% will be reduced under the current law to 35% next year and 30% for all subsequent years. At the end of the current year, the deferred tax liability related to the excess depreciation will be: |
$19 million. |
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Bumble Bee Co. had taxable income of $7,000, MACRS depreciation of $5,000, book depreciation of $2,000, and accrued warranty expense of $400 on the books although no warranty work was performed. What is Bumble Bee’s pretax accounting income? |
$9,600. |
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For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included warranty expense of $6 and $20 in depreciation expense. Two million of warranty costs were incurred, and MACRS depreciation amounted to $35. In the absence of other temporary or permanent differences, what was Centipede’s income tax payable currently, assuming a tax rate of 40%? |
27.6 million. |
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For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included warranty expense of $6 and $20 in depreciation expense. Two million of warranty costs were incurred, and MACRS depreciation amounted to $35. In the absence of other temporary or permanent differences, what was Centipede’s taxable income? |
$69 million. |
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Under current tax law, generally a net operating loss may be carried back: |
2 years. |
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Under current tax law a net operating loss may be carried forward up to: |
20 years. |
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If a company’s deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that: |
Sufficient taxable income will be generated in future years to realize the full tax benefit. |
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A net operating loss (NOL) carryforward cannot result in the balance sheet at the end of the NOL year showing: |
A receivable under current assets for an income tax refund. |
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The tax effect of a net operating loss (NOL) carryback usually: |
Results in a current receivable at the end of the NOL year. |
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Recognizing tax benefits in a loss year due to a net operating loss carryforward requires: |
Creating a deferred tax asset. |
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In its first four years of operations Peridot Jewelers reported the following operating income (loss) amounts: 2010: 150000 There were no other deferred income taxes in any year. In 2012, Peridot elected to carry back its operating loss. The enacted income tax rate was 40%. In its 2013 income statement, what amount should Peridot report as income tax expense? |
$180,000. |
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The Kelso Company had the following operating results: year/income/tax rate/income tax What is the income tax refund receivable? |
$19,500 |
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In 2013, Bodily Corporation reported $300,000 pretax accounting income. The income tax rate for that year was 30%. Bodily had an unused $120,000 net operating loss carryforward from 2011 when the tax rate was 40%. Bodily’s income tax payable for 2013 would be |
$54,000 |
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In its first three years of operations Sharp Chairs reported the following operating income (loss) amounts: 2011: 1,350,000 There were no deferred income taxes in any year. In 2012, Sharp elected to carry back its operating loss. The enacted income tax rate was 35% in 2011 and 40% thereafter. In its 2013 balance sheet, what amount should Sharp report as current income tax payable? |
$1,440,000. |
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In its first four years of operations Peridot Jewelers reported the following operating income (loss) amounts: 2010: 150,000 There were no other deferred income taxes in any year. In 2012, Peridot elected to carry back its operating loss. The enacted income tax rate was 40%. In its 2013 income statement, what amount should Peridot report as current income tax payable? |
$110,000. |
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According to GAAP for accounting for income taxes, when a company has a net operating loss carryforward: |
A deferred tax asset is recorded along with any applicable valuation allowance. |
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Puritan Corp. reported the following pretax accounting income and taxable income for its first three years of operations: 2012: 350,000 Puritan’s tax rate is 40% for all years. As of December 31, 2013, Puritan was certain that it would recover the full tax benefit of the NOL that remained after the operating loss carryback. What would Puritan report as net income for 2014? |
$420,000. |
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Puritan Corp. reported the following pretax accounting income and taxable income for its first three years of operations: 2012: 350,000 Puritan’s tax rate is 40% for all years. Puritan elected a loss carryback. Puritan was certain it would recover the full tax benefit of the NOL. What did it report on December 31, 2013, as the deferred tax asset for the NOL carryforward? |
$100,000. |
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Puritan Corp. reported the following pretax accounting income and taxable income for its first three years of operations: 2012: 350,000 Puritan’s tax rate is 40% for all years. Assuming that Puritan elected a loss carryback, what would be the net loss in 2013 reported in Puritan’s income statement? |
$360,000. |
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Before considering a net operating loss carryforward of $80 million, Fama Corporation reported $200 million of pretax accounting and taxable income in the current year. The income tax rate for all previous years was 40%. On January 1 of the current year, a new tax law was enacted, reducing the rate to 30% effective immediately. Fama’s income tax payable for the current year would be: |
$36 million. |
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Reliable Corp. had a pretax accounting income of $30 million this year. This included the collection of $40 million of life insurance proceeds when several key executives died in a plane crash. Temporary differences for the current year netted out to zero. Reliable has had a 40% tax rate and taxable income of $120 million over the previous two years and plans to elect an operating loss carryback for any NOL. In the current year financial statements, Reliable would report: |
Net income of $34 million. |
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Theodore Enterprises had the following pretax income (loss) over its first three years of operations: 2011: 500,000 For each year there were no deferred income taxes and the tax rate was 30%. In its 2012 tax return, Theodore elected a loss carryback. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2012. What was Theodore’s income tax expense for 2013? |
$450,000. |
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Clinton Corp. had the following pretax income (loss) over its first three years of operations: 2011: 1,200,000 For each year there were no deferred income taxes and the tax rate was 40%. For its 2012 tax return, Clinton did not elect a loss carryback. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2012. What was Clinton’s income tax expense in 2013? |
600,000. |
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The Bell Company had the following operating results: year/income/tax rate/income tax What is the income tax refund receivable? |
$23,000. |
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For reporting purposes, current deferred tax assets and current deferred tax liabilities are: |
Netted against one another in the balance sheet. |
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Financial statement disclosure of the components of income tax expense: |
Usually is included in the disclosure notes. |
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At December 31, 2013, Moonlight Bay Resorts had the following deferred income tax items: Deferred tax asset of $54 million related to a current liability Moonlight Bay should report in the current section of its December 31, 2013, balance sheet a: |
Current tax liability of $18,000. |
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Due to differences between depreciation reported in the income statement and depreciation deducted for tax purposes, Lucas Corp. has $2 million in temporary differences that will increase taxable income next year. Assuming that Lucas has no other temporary differences, deferred income taxes should be reported in this year’s ending balance sheet as a: |
Noncurrent deferred tax liability. |
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A reconciliation of pretax financial statement income to taxable income is shown below for Fieval Industries for the year ended December 31, 2013, its first year of operations. The income tax rate is 40%. pretax acct income: 300,000 What amount(s) should Fieval report related to deferred income taxes in its 2013 balance sheet? |
Current asset of $10,000 and noncurrent liability of $28,000. |
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A reconciliation of pretax financial statement income to taxable income is shown below for See Shipping for the year ended December 31, 2013, its first year of operations. The income tax rate is 40%. pretax acct income: 600000 What amount should See report as a current item related to deferred income taxes in its 2013 balance sheet? |
Deferred income tax liability of $10,000. |
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On its tax return at the end of the current year Webnet Inc. has $6 million of tax depreciation in excess of depreciation in its income statement. A disclosure note reveals that $1 million of the $6 million difference will reverse itself next year, and the remainder will reverse over the next 4 years. In the absence of other temporary differences, in the balance sheet at the end of the current year Webnet would report: |
A noncurrent deferred tax liability. |
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Madison Company has taken a position in its tax return to claim a tax credit of $60 million (direct reduction in taxes payable) and has determined that its sustainability is "more likely than not," based on its technical merits. The tax credit would be a direct reduction in current taxes payable. Madison believes the likelihood that a $60 million, $36 million, or $12 million tax benefit will be sustained is 25%, 30%, and 45%, respectively. Madison’s taxable income is $510 million for the year. Its effective tax rate is 40%. What is Madison’s income tax expense for the year? |
$168 million. |
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