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Exam 6: Accounting for Income Taxes

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Question 31

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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. Using a tax rate of 34%, Swordfish's deferred income tax expense or benefit would be:

A) $25,500 net deferred tax expense
B) $25,500 net deferred tax benefit
C) $42,500 net deferred tax benefit
D) $42,500 net deferred tax expense

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

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Question 32

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Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

A) Accelerated tax depreciation in excess of straight-line book depreciation
B) Prepayment income reported as income on the tax return prior to being reported as income on the financial income statement
C) Gain reported on the income statement prior to being reported on the tax return
D) Prepayment deduction reported on the tax return prior to being reported on the income statement

E) A) and B)
F) B) and D)

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Question 33

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

Grand River Corporation reported pretax book income of $500,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $10,000, and favorable permanent differences of $90,000. Assuming a tax rate of 34%, the Corporation's current income tax expense or benefit would be:

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, assuming a tax rate of 34%.

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

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?

Heron Corporation reported pretax book income of $4,000,000. Included in the computation were favorable temporary differences of $500,000, unfavorable temporary differences of $700,000, and unfavorable permanent differences of $200,000. Using a tax rate of 34%, compute Heron's current income tax expense or benefit.

ASC 740 requires a publicly traded company to disclose the components of its deferred tax assets and liabilities only if the amounts are considered to be:

A valuation allowance is recorded against a deferred tax asset when:

In general, a temporary difference reflects a difference in the financial basis and tax basis of an asset or liability on the balance sheet.

Assume Congress reduces the corporate tax rate from 35 percent to 25 percent effective in 2016. The tax rate change will affect only deferred tax assets and liabilities that arise in 2016 and thereafter. A corporation must adjust its existing deferred tax accounts as well.

Which of the following statements about uncertain tax position disclosures is false?

Which of the following best describes the focus of ASC 740?

Angel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Angel subtracted a dividends received deduction of $25,000 in computing its current year taxable income. Using a tax rate of 34%, Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

DeWitt Corporation reported pretax book income of $800,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $100,000 of tax-exempt municipal bond interest. DeWitt used a net operating loss carryover of $200,000 to offset taxable income in the current year. Compute DeWitt's book equivalent of taxable income. Use this number to compute DeWitt's total income tax provision or benefit for the current year, assuming a tax rate of 34%.

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. Using a tax rate of 34%, Marlin's current income tax expense or benefit would be:

Which of the following statements is true?

Izzo Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $800,000. The favorable book-tax difference of $200,000 was due to a $100,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $50,000 due to accrued vacation pay, and a $150,000 favorable permanent difference from the domestic manufacturing deduction. Izzo Company's applicable tax rate is 34%. a. Compute Izzo Company's current income tax expense. b. Compute Izzo Company's deferred income tax expense or benefit. c. Compute Izzo Company's effective tax rate. d. Provide a reconciliation of Izzo Company's effective tax rate with its hypothetical tax rate of 34%.

ASC 740 is the sole source of rules related to accounting for income taxes. Other pronouncements also provide rules related to accounting for income taxes.