ACCT3348 Final - Ch 19

Hopkins Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income$3000000 Estimated litigation expense4000000 Extra depreciation for taxes(6000000) Taxable income$ 1000000 The estimated litigation expense of $4000000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2000000 in each of the next 3 years. The income tax rate is 20% for all years. The deferred tax liability to be recognized is

$1,200,000

Larsen Corporation reported $200000 in revenues in its 2021 financial statements, of which $66000 will not be included in the tax return until 2022. The enacted tax rate is 30% for 2021 and 25% for 2022. What amount should Larsen report for deferred income tax liability in its balance sheet at December 31, 2021?

$16500

Rodd Co. reports a taxable and pretax financial loss of $900000 for 2021. Rodd's taxable and pretax financial income and tax rates for the last two years were: 2019 $900000 20% 2020 $900000 25% The amount that Rodd should report as an income tax refund receivable in 2021, assuming that it uses the carryback provisions and that the tax rate is 30% in 2021, is

$180,000

Hopkins Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income$3000000 Estimated litigation expense4000000 Extra depreciation for taxes(6000000) Taxable income$ 1000000 The estimated litigation expense of $4000000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2000000 in each of the next 3 years. The income tax rate is 20% for all years. Income taxes payable is

$200,000

Lyons Company deducts insurance expense of $210000 for tax purposes in 2021, but the expense is not yet recognized for accounting purposes. In 2022, 2023, and 2024, no insurance expense will be deducted for tax purposes, but $70000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 20% and income taxes payable of $180000 at the end of 2021. There were no deferred taxes at the beginning of 2021. What is the amount of income tax expense for 2021?

$222,000

Lyons Company deducts insurance expense of $210000 for tax purposes in 2021, but the expense is not yet recognized for accounting purposes. In 2022, 2023, and 2024, no insurance expense will be deducted for tax purposes, but $70000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 20% and income taxes payable of $180000 at the end of 2021. There were no deferred taxes at the beginning of 2021. Assuming that income taxes payable for 2022 is $240000, the income tax expense for 2022 would be what amount?

$226,000

Fleming Company has the following cumulative taxable temporary differences: 12/31/21 $1600000 12/31/20 $2250000 The tax rate enacted for 2021 is 30%, while the tax rate enacted for future years is 20%. Taxable income for 2021 is $4000000 and there are no permanent differences. Fleming's pretax financial income for 2021 is:

$3,350,000

Operating income and tax rates for C.J. Company's first three years of operations were as follows: Income Enacted tax rate 2020 $400000 25% 2021 ($1000000) 20% 2022 $1680000 30% Assuming that C.J. Company opts only to carryforward its 2021 NOL, what is the amount of deferred tax asset or liability that C.J. Company would report on its December 31, 2021 balance sheet?

$300,000

Cross Company reported the following results for the year ended December 31, 2021, its first year of operations: 2021 Income (per books before income taxes)$2000000 Taxable income 3200000 The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2022. What should Cross record as a net deferred tax asset or liability for the year ended December 31, 2021, assuming that the enacted tax rates in effect are 30% in 2021 and 25% in 2022?

$300,000 deferred tax asset

Operating income and tax rates for C.J. Company's first three years of operations were as follows: Income Enacted rate 2020 $400000 25% 2021 ($1000000) 20% 2022 $1680000 30% Assuming that C.J. Company opts to carryback its 2021 NOL, what is the amount of income taxes payable at December 31, 2022?

$324,000

Lyons Company deducts insurance expense of $210000 for tax purposes in 2021, but the expense is not yet recognized for accounting purposes. In 2022, 2023, and 2024, no insurance expense will be deducted for tax purposes, but $70000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 20% and income taxes payable of $180000 at the end of 2021. There were no deferred taxes at the beginning of 2021. What is the amount of the deferred tax liability at the end of 2021?

$42,000

On January 1, 2021, Gore, Inc. purchased a machine for $2250000 which will be depreciated $225000 per year for financial statement reporting purposes. For income tax reporting, Gore elected to expense $250000 and to use straight-line depreciation which will allow a cost recovery deduction of $200000 for 2021. Assume a present and future enacted income tax rate of 20%. What amount should be added to Gore's deferred income tax liability for this temporary difference at December 31, 2021?

$45,000

A reconciliation of Gentry Company's pretax accounting income with its taxable income for 2021, its first year of operations, is as follows: Pretax accounting income$4500000 Excess tax depreciation(225000) Taxable income$4275000 The excess tax depreciation will result in equal net taxable amounts in each of the next three years. Enacted tax rates are 30% in 2021, 25% in 2022 and 2023, and 20% in 2024. The total deferred tax liability to be reported on Gentry's balance sheet at December 31, 2021, is

$52,500

Hopkins Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income$3000000 Estimated litigation expense4000000 Extra depreciation for taxes(6000000) Taxable income$ 1000000 The estimated litigation expense of $4000000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2000000 in each of the next 3 years. The income tax rate is 20% for all years. The deferred tax asset to be recognized is

$800,000

Nickerson Corporation began operations in 2019. There have been no permanent or temporary differences to account for since the inception of the business. The following data are available: Year Enacted Tax Rate Taxable Income Taxes Paid 2019 35% $2000000 $700000 2020 30% 2400000 720000 2021 25% 2022 20% In 2021, Nickerson had an operating loss of $2480000. What amount of income tax benefits should be reported on the 2021 income statement due to this loss assuming that it uses the carryback provision?

$844,000

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income? a. Prepaid expenses that are deducted on the tax return in the period paid. b. Fines and expenses resulting from a violation of law. c. Product warranty liabilities. d. Depreciable property.

c. Product warranty liabilities.

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be a. handled retroactively in accordance with the guidance related to changes in accounting principles. b. applied to all temporary or permanent differences that arise prior to the date of the enactment of the tax rate change, but not subsequent to the date of the change. c. reported as an adjustment to income tax expense in the period of change. d. considered, but it should only be recorded in the accounts if it reduces a deferred tax liability or increases a deferred tax asset.

c. reported as an adjustment to income tax expense in the period of change.

An example of a permanent difference is a. proceeds from life insurance on officers. b. interest expense on money borrowed to invest in municipal bonds. c. insurance expense for a life insurance policy on officers. d. All of these answers are correct as they are all examples of permanent differences.

d. All of these answers are correct as they are all examples of permanent differences.

Which of the following differences would result in future taxable amounts? a. Revenues or gains that are recognized in financial income but are never included in taxable income. b. Expenses or losses that are tax deductible after they are recognized in financial income. c. Revenues or gains that are taxable before they are recognized in financial income. d. Expenses or losses that are tax deductible before they are recognized in financial income.

d. Expenses or losses that are tax deductible before they are recognized in financial income.

A major distinction between temporary and permanent differences is: a. temporary differences occur frequently, whereas permanent differences occur only once. b. permanent differences are not representative of acceptable accounting practice. c. once an item is determined to be a temporary difference, it maintains that status; however, a permanent difference can change in status with the passage of time. d. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.

d. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.