Chapter 19 Multiple Choice- Computational

Lehman Corporation purchased a machine on January 2, 2013, for $3,000,000. The machine has an estimated 5-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and the following MACRS amounts will be deducted for tax purposes: 2013: $600,000 2014: $960,000 2015: 576,000 2016: $345,000 2017: $345,000 2018: 174,000 Assuming an income tax rate of 30% for all years, the net deferred tax liability that should be reflected on Lehman's balance sheet at December 31, 2014 be Deferred Tax Liability Current Noncurrent a. $0 $108,000 b. $7,200 $100,800 c. $100,800 $7,200 d. $108,000 $0

a. $0 $108,000

Larsen Corporation reported $100,000 in revenues in its 2014 financial statements, of which $33,000 will not be included in the tax return until 2015. The enacted tax rate is 40% for 2014 and 35% for 2015. What amount should Larsen report for deferred income tax liability in its balance sheet at December 31, 2014? a. $11,550 b. $13,200 c. $14,700 d. $16,800

a. $11,550

Lyons Company deducts insurance expense of $126,000 for tax purposes in 2014, but the expense is not yet recognized for accounting purposes. In 2015, 2016, and 2017, no insurance expense will be deducted for tax purposes, but $42,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $108,000 at the end of 2014. There were no deferred taxes at the beginning of 2014. ~What is the amount of income tax expense for 2014? a. $158,400 b. $151,200 c. $126,000 d. $108,000

a. $158,400

Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income: $800,000 Estimated litigation expense: 2,000,000 Installment sales: (1,600,000) Taxable income: $ 1,200,000 The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 30% for all years. ~The income tax expense is a. $240,000. b. $360,000. c. $400,000. d. $800,000.

a. $240,000.

Rodd Co. reports a taxable and pretax financial loss of $800,000 for 2015. Rodd's taxable and pretax financial income and tax rates for the last two years were: 2013 $800,000 30% 2014 800,000 35% The amount that Rodd should report as an income tax refund receivable in 2015, assuming that it uses the carryback provisions and that the tax rate is 40% in 2015, is a. $240,000. b. $280,000. c. $320,000. d. $360,000.

a. $240,000.

Watson Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2015 $1,800,000 Tax exempt interest: (100,000) Originating temporary difference: (300,000) Taxable income: $1,400,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2015 is 28%. What amount should be reported in its 2015 income statement as the current portion of its provision for income taxes? a. $392,000 b. $560,000 c. $504,000 d. $720,000

a. $392,000

Ewing Company sells household furniture. Customers who purchase furniture on the installment basis make payments in equal monthly installments over a two-year period, with no down payment required. Ewing's gross profit on installment sales equals 40% of the selling price of the furniture. For financial accounting purposes, sales revenue is recognized at the time the sale is made. For income tax purposes, however, the installment method is used. There are no other book and income tax accounting differences, and Ewing's income tax rate is 30%. If Ewing's December 31, 2015, balance sheet includes a deferred tax liability of $600,000 arising from the difference between book and tax treatment of the installment sales, it should also include installment accounts receivable of a. $5,000,000. b. $2,000,000. c. $1,500,000. d. $450,000.

a. $5,000,000.

Lyons Company deducts insurance expense of $126,000 for tax purposes in 2014, but the expense is not yet recognized for accounting purposes. In 2015, 2016, and 2017, no insurance expense will be deducted for tax purposes, but $42,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $108,000 at the end of 2014. There were no deferred taxes at the beginning of 2014. ~What is the amount of the deferred tax liability at the end of 2014? a. $50,400 b. $43,200 c. $18,000 d. $0

a. $50,400

Mitchell Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2015 $ 900,000 Tax exempt interest: (75,000) Originating temporary difference: (175,000) Taxable income $650,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2015 is 35%. ~What amount should be reported in its 2015 income statement as the deferred portion of income tax expense? a. $70,000 debit b. $87,500 debit c. $70,000 credit d. $87,500 credit

a. $70,000 debit

Horner Corporation has a deferred tax asset at December 31, 2015 of $160,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted tax rates are as follows: 40% for 2012-2014; 35% for 2015; and 30% for 2016 and thereafter. Assuming that management expects that only 50% of the related benefits will actually be realized, a valuation account should be established in the amount of: a. $80,000 b. $32,000 c. $28,000 d. $24,000

a. $80,000

Nickerson Corporation began operations in 2013. 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 2013 45%/$1,500,000/675K 2014 40%/$1,800,000/720K 2015 35% 2016 30% In 2015, Nickerson had an operating loss of $1,860,000. What amount of income tax benefits should be reported on the 2015 income statement due to this loss assuming that it uses the carryback provision? a. $819,000 b. $747,000 c. $744,000 d. $558,000

a. $819,000

Rowen, Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions: Received rent from Jane, Co. for 2016 $64,000 Municipal bond income: $80,000 Depreciation for tax purposes in excess of book depreciation $40,000 Installment sales revenue to be collected in 2016: $108,000 ~At the end of 2015, which of the following deferred tax accounts and balances is reported on Rowen, Inc.'s balance sheet? Account _ Balance a.Deferred tax asset $25,600 b.Deferred tax liability $25,600 c.Deferred tax asset $41,600 d.Deferred tax liability $41,600

a.Deferred tax asset $25,600

At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a deferred tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: Interest income from municipal bonds $ 60,000 Accrued warranty costs, estimated to be paid in 2016 $130,000 Operating loss carryforward $ 95,000 Installment sales revenue, will be collected in 2016 $ 65,000 Prepaid rent expense, will be used in 2016 $30,000 ~What is Elephant, Inc.'s taxable income for 2015? a. $ 750,000 b. $ 630,000 c. $ 870,000 d. $1,130,000

b. $ 630,000

Wilcox Corporation reported the following results for its first three years of operation: 2014 income (before income taxes) $ 200,000 2015 loss (before income taxes) (1,800,000) 2016 income (before income taxes) 2,000,000 There were no permanent or temporary differences during these three years. Assume a corporate tax rate of 30% for 2014 and 2015, and 40% for 2016. ~Assuming that Wilcox elects to use the carryforward provision and not the carryback provision, what income (loss) is reported in 2015? a. $(1,800,000) b. $(1,080,000) c. $ -0- d. $(1,740,000)

b. $(1,080,000)

Kraft Company made the following journal entry in late 2014 for rent on property it leases to Danford Corporation. Cash 120,000 Unearned Rent Revenue 90,000 The payment represents rent for the years 2015 and 2016, the period covered by the lease. Kraft Company is a cash basis taxpayer. Kraft has income tax payable of $184,000 at the end of 2014, and its tax rate is 35%. ~What amount of income tax expense should Kraft Company report at the end of 2014? a. $106,000 b. $142,000 c. $163,000 d. $226,000

b. $142,000

Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income: $1,500,000 Estimated litigation expense: 2,000,000 Extra depreciation for taxes: (3,000,000) Taxable income $ 500,000 The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each of the next three years. The income tax rate is 30% for all years. ~Income taxes payable is a. $0. b. $150,000. c. $300,000. d. $450,000.

b. $150,000.

Fleming Company has the following cumulative taxable temporary differences: 12/31/15 12/31/14 $1,280,000 $1,800,000 The tax rate enacted for 2015 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2015 is $3,200,000 and there are no permanent differences. Fleming's pretax financial income for 2015 is: a. $1,920,000 b. $2,680,000 c. $3,460,000 d. $4,480,000

b. $2,680,000

Based on the following information, compute 2015 taxable income for South Co. assuming that its pre-tax accounting income for the year ended December 31, 2015 is $345,000 Temporary difference/ Future taxable (deductible) amount Installment sales/ $288,000 Depreciation/$90,000 Unearned rent/ ($300,000) a. $423,000 b. $267,000 c. $723,000 d. $333,000

b. $267,000

Cross Company reported the following results for the year ended December 31, 2014, its first year of operations: 2014 Income (per books before income taxes) $ 1,500,000 Taxable income 2,400,000 The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2015. What should Cross record as a net deferred tax asset or liability for the year ended December 31, 2014, assuming that the enacted tax rates in effect are 40% in 2014 and 35% in 2015? a. $360,000 deferred tax liability b. $315,000 deferred tax asset c. $360,000 deferred tax asset d. $315,000 deferred tax liability

b. $315,000 deferred tax asset

At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a deferred tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: Interest income from municipal bonds $ 60,000 Accrued warranty costs, estimated to be paid in 2016 $130,000 Operating loss carryforward $ 95,000 Installment sales revenue, will be collected in 2016 $ 65,000 Prepaid rent expense, will be used in 2016 $30,000 ~The ending balance in Elephant, Inc's deferred tax liability at December 31, 2015 is a. $23,000 b. $38,000 c. $26,000 d. $78,000

b. $38,000

Ferguson Company has the following cumulative taxable temporary differences: 12/31/15 12/31/14 $2,700,000 $1,920,000 The tax rate enacted for 2015 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2015 is $4,800,000 and there are no permanent differences. Ferguson's pretax financial income for 2015 is a. $7,500,000. b. $5,580,000. c. $4,020,000. d. $2,100,000.

b. $5,580,000.

A reconciliation of Gentry Company's pretax accounting income with its taxable income for 2014, its first year of operations, is as follows: Pretax accounting income $3,000,000 Excess tax depreciation (150,000) Taxable income $2,850,000 The excess tax depreciation will result in equal net taxable amounts in each of the next three years. Enacted tax rates are 40% in 2014, 35% in 2015 and 2016, and 30% in 2017. The total deferred tax liability to be reported on Gentry's balance sheet at December 31, 2014, is a. $60,000. b. $50,000. c. $52,500. d. $45,000.

b. $50,000.

Rowen, Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions: Received rent from Jane, Co. for 2016 $64,000 Municipal bond income: $80,000 Depreciation for tax purposes in excess of book depreciation $40,000 Installment sales revenue to be collected in 2016: $108,000 ~For 2015, what is the amount of income taxes payable for Rowen, Inc? a. $603,200 b. $654,400 c. $686,400 d. $772,800

b. $654,400

Palmer Co. had a deferred tax liability balance due to a temporary difference at the beginning of 2014 related to $900,000 of excess depreciation. In December of 2014, a new income tax act is signed into law that lowers the corporate rate from 40% to 35%, effective January 1, 2016. If taxable amounts related to the temporary difference are scheduled to be reversed by $450,000 for both 2015 and 2016, Palmer should increase or decrease deferred tax liability by what amount? a. Decrease by $45,000 b. Decrease by $22,500 c. Increase by $22,500 d. Increase by $45,000

b. Decrease by $22,500

At the beginning of 2015, Pitman Co. purchased an asset for $1,200,000 with an estimated useful life of 5 years and an estimated salvage value of $100,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2015 and all future years. ~At the end of 2015, which of the following deferred tax accounts and balances is reported on Pitman's balance sheet? Account/ Balance a.Deferred tax asset/ $104,000 b.Deferred tax liability/ $104,000 c.Deferred tax asset/ $156,000 d.Deferred tax liability/ $156,000

b.Deferred tax liability/ $104,000

Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income: $1,500,000 Estimated litigation expense: 2,000,000 Extra depreciation for taxes: (3,000,000) Taxable income $ 500,000 The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each of the next three years. The income tax rate is 30% for all years. ~The deferred tax liability to be recognized is Current Noncurrent a.$300,000 $600,000 b.$300,000 $450,000 c. $0 $900,000 d. $0 $750,000

c. $0 $900,000

Duncan Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Profits of $600,000 recognized for books in 2014 will be collected in the following years: Collection of Profits 2015 $100,000 2016 $200,000 2017 $300,000 The enacted tax rates are: 40% for 2014, 35% for 2015, and 30% for 2016 and 2017. Taxable income is expected in all future years. What amount should be included in the December 31, 2014, balance sheet for the deferred tax liability related to the above temporary difference? a. $ 35,000 b. $150,000 c. $185,000 d. $240,000

c. $185,000

Kraft Company made the following journal entry in late 2014 for rent on property it leases to Danford Corporation. Cash 120,000 Unearned Rent Revenue 90,000 The payment represents rent for the years 2015 and 2016, the period covered by the lease. Kraft Company is a cash basis taxpayer. Kraft has income tax payable of $184,000 at the end of 2014, and its tax rate is 35%. ~Assuming the income taxes payable at the end of 2015 is $204,000, what amount of income tax expense would Kraft Company record for 2015? a. $162,000 b. $183,000 c. $225,000 d. $246,000

c. $225,000

Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income: $800,000 Estimated litigation expense: 2,000,000 Installment sales: (1,600,000) Taxable income: $ 1,200,000 The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 30% for all years. ~The deferred tax liability—current to be recognized is a. $120,000. b. $360,000. c. $240,000. d. $480,000.

c. $240,000.

Operating income and tax rates for C.J. Company's first three years of operations were as follows: Income Enacted tax rate 2014 $300,000 35% 2015 ($750,000) 30% 2016 $1,260,000 40% ~Assuming that C.J. Company opts only to carryforward its 2015 NOL, what is the amount of deferred tax asset or liability that C.J. Company would report on its December 31, 2015 balance sheet? Amount/ Deferred tax asset or liability a. $225,000/Deferred tax liability b. $262,500/ Deferred tax liability c. $300,000/ Deferred tax asset d. $225,000/ Deferred tax asset

c. $300,000/ Deferred tax asset

Mitchell Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2015 $ 900,000 Tax exempt interest: (75,000) Originating temporary difference: (175,000) Taxable income $650,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2015 is 35%. ~In Mitchell's 2015 income statement, what amount should be reported for total income tax expense? a. $345,000 b. $315,000 c. $315,000 d. $227,500

c. $315,000

At the beginning of 2015, Pitman Co. purchased an asset for $1,200,000 with an estimated useful life of 5 years and an estimated salvage value of $100,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2015 and all future years. ~At the end of 2015, what are the book basis and the tax basis of the asset? Book basis Tax basis a. $880,000 $620,000 b.$980,000 $620,000 c.$980,000 $720,000 d.$880,000 $720,000

c.$980,000 $720,000

Wilcox Corporation reported the following results for its first three years of operation: 2014 income (before income taxes) $ 200,000 2015 loss (before income taxes) (1,800,000) 2016 income (before income taxes) 2,000,000 There were no permanent or temporary differences during these three years. Assume a corporate tax rate of 30% for 2014 and 2015, and 40% for 2016. ~Assuming that Wilcox elects to use the carryback provision, what income (loss) is reported in 2015? (Assume that any deferred tax asset recognized is more likely than not to be realized.) a. $(1,800,000) b. $ -0- c. $(1,740,000) d. $(1,100,000)

d. $(1,100,000)

Khan, Inc. reports a taxable and financial loss of $1,950,000 for 2015. Its pretax financial income for the last two years was as follows: 2013 $900,000 2014 1,200,000 The amount that Khan, Inc. reports as a net loss for financial reporting purposes in 2015, assuming that it uses the carryback provisions, and that the tax rate is 30% for all periods affected, is a. $1,950,000 loss. b. $ -0-. c. $585,000 loss. d. $1,365,000 loss.

d. $1,365,000 loss.

Lyons Company deducts insurance expense of $126,000 for tax purposes in 2014, but the expense is not yet recognized for accounting purposes. In 2015, 2016, and 2017, no insurance expense will be deducted for tax purposes, but $42,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $108,000 at the end of 2014. There were no deferred taxes at the beginning of 2014. ~Assuming that income taxes payable for 2015 is $144,000, the income tax expense for 2015 would be what amount? a. $194,400 b. $160,800 c. $144,000 d. $127,200

d. $127,200

Eckert Corporation's partial income statement after its first year of operations is as follows: Income before income taxes $3,750,000 Income tax expense: Current: $1,035,000 Deferred: 90,000 1,125,000 Net income $2,625,000 Eckert uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $2,400,000. No other differences existed between book income and taxable income except for the amount of depreciation. Assuming a 30% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year? a. $2,100,000 b. $1,125,000 c. $2,400,000 d. $2,700,000

d. $2,700,000

Operating income and tax rates for C.J. Company's first three years of operations were as follows: Income Enacted tax rate 2014 $300,000 35% 2015 ($750,000) 30% 2016 $1,260,000 40% ~Assuming that C.J. Company opts to carryback its 2015 NOL, what is the amount of income taxes payable at December 31, 2016? a. $204,000 b. $504,000 c. $369,000 d. $324,000

d. $324,000

Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income: $1,500,000 Estimated litigation expense: 2,000,000 Extra depreciation for taxes: (3,000,000) Taxable income $ 500,000 The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each of the next three years. The income tax rate is 30% for all years. ~The deferred tax asset to be recognized is a. $150,000 current. b. $300,000 current. c. $450,000 current. d. $600,000 current.

d. $600,000 current.

Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income: $800,000 Estimated litigation expense: 2,000,000 Installment sales: (1,600,000) Taxable income: $ 1,200,000 The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 30% for all years. ~The deferred tax asset to be recognized is a. $0. b. $120,000 current. c. $600,000 current. d. $600,000 noncurrent.

d. $600,000 noncurrent.

In 2014, Krause Company accrued, for financial statement reporting, estimated losses on disposal of unused plant facilities of $2,400,000. The facilities were sold in March 2015 and a $2,400,000 loss was recognized for tax purposes. Also in 2014, Krause paid $100,000 in premiums for a two-year life insurance policy in which the company was the beneficiary. Assuming that the enacted tax rate is 30% in both 2014 and 2015, and that Krause paid $780,000 in income taxes in 2014, the amount reported as net deferred income taxes on Krause's balance sheet at December 31, 2014, should be a a. $680,000 asset. b. $360,000 asset. c. $360,000 liability. d. $720,000 asset.

d. $720,000 asset.

The following information is available for Kessler Company after its first year of operations: Income before taxes $250,000 Federal income tax payable $104,000 Deferred income tax (4,000) Income tax expense 100,000 Net income $150,000 Kessler estimates its annual warranty expense as a percentage of sales. The amount charged to warranty expense on its books was $85,000. Assuming a 40% income tax rate, what amount was actually paid this year for warranty claims? a. $95,000 b. $100,000 c. $85,000 d. $75,000

d. $75,000

At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a deferred tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: Interest income from municipal bonds $ 60,000 Accrued warranty costs, estimated to be paid in 2016 $130,000 Operating loss carryforward $ 95,000 Installment sales revenue, will be collected in 2016 $ 65,000 Prepaid rent expense, will be used in 2016 $30,000 ~Which of the following is required to adjust Elephant, Inc.'s deferred tax asset to its correct balance at December 31, 2015? a. A credit of $52,000 b. A credit of $38,000 c. A debit of $38,000 d. A debit of $42,000

d. A debit of $42,000

At December 31, 2014 Raymond Corporation reported a deferred tax liability of $180,000 which was attributable to a taxable type temporary difference of $600,000. The temporary difference is scheduled to reverse in 2018. During 2015, a new tax law increased the corporate tax rate from 30% to 40%. Raymond should record this change by debiting a. Retained Earnings for $60,000. b. Retained Earnings for $18,000. c. Income Tax Expense for $18,000. d. Income Tax Expense for $60,000.

d. Income Tax Expense for $60,000.