ACC 312 Ch. 19 Tax Test Bank

Sweet Corporation has a cumulative temporary difference related to depreciation of $628,000 at December 31, 2020. This difference will reverse as follows: 2021, $46,000; 2022, $263,000; and 2023, $319,000. Enacted tax rates are 17% for 2021 and 2022, and 20% for 2023.Compute the amount Sweet should report as a deferred tax liability at December 31, 2020.

116330

Stellar Technology Inc. began operations in 2017 and reported pretax financial income of $519,000 for the year. Stellar's tax depreciation exceeded its book depreciation by $35,000. Stellar's tax rate for 2017 and years thereafter is 35%. In its December 31, 2017, balance sheet, what amount of deferred tax liability should be reported?

12250

At the end of the year, Sheridan Co. has pretax financial income of $506,000. Included in the $506,000 is $64,400 interest income on municipal bonds, $23,000 fine for dumping hazardous waste, and depreciation of $55,200. Depreciation for tax purposes is $41,400. Compute income taxes payable, assuming the tax rate is 30% for all periods.

143520

Nash Inc. has a deferred tax liability of $55,760 at the beginning of 2021. At the end of 2021, it reports accounts receivable on the books at $73,800 and the tax basis at zero (its only temporary difference). If the enacted tax rate is 17% for all periods, and income taxes payable for the period is $188,600, determine the amount of total income tax expense to report for 2021.

145386

At December 31, 2020, Monty Corporation had an estimated warranty liability of $108,000 for accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 20%.Compute the amount Monty should report as a deferred tax asset at December 31, 2020.

21600

In 2020, Carla Corporation had pretax financial income of $172,000 and taxable income of $125,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 20%.Compute the amount to be reported as income taxes payable at December 31, 2020

25000

Windsor financial income for Lake Inc. is $282,000, and its taxable income is $94,000 for 2021. Its only temporary difference at the end of the period relates to a $65,800 difference due to excess depreciation for tax purposes. If the tax rate is 20% for all periods, compute the amount of income tax expense to report in 2021. No deferred income taxes existed at the beginning of the year.

31960

At December 31, 2020, Novak Inc. had a deferred tax asset of $28,700. At December 31, 2021, the deferred tax asset is $56,800. The corporation's 2021 current tax expense is $63,800.What amount should Novak report as total 2021 income tax expense?

35700

The book basis of depreciable assets for Sheffield Co. is $1,008,000, and the tax basis is $784,000 at the end of 2021. The enacted tax rate is 17% for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2021.

38080

Wildhorse Company's current income taxes payable related to its taxable income for 2020 is $378,000. In addition, Wildhorse's deferred tax asset decreased $17,000 during 2020. What is Wildhorse's income tax expense for 2020?

395000

Blossom Company's current income taxes payable related to its taxable income for 2020 is $373,000. In addition, Blossom's deferred tax liability increased $42,000 and its deferred tax asset increased $11,000 during 2020. What is Blossom's income tax expense for 2020?

404000

At December 31, 2020, Sheridan Corporation had a deferred tax liability of $26,400. At December 31, 2021, the deferred tax liability is $41,300. The corporation's 2021 current tax expense is $46,700. What amount should Sheridan report as total 2021 income tax expense?

61600

Teal Corporation began operations in 2020 and reported pretax financial income of $212,000 for the year. Teal's tax depreciation exceeded its book depreciation by $33,000. Teal's tax rate for 2020 and years thereafter is 30%. In its December 31, 2020, balance sheet, what amount of deferred tax liability should be reported?

9900

fill in the blank

Fill in the blank

In Year 1, Lobo Corp. reported for financial-statement purposes the following revenue and expenses that were not included in taxable income: Premiums on officers' life insurance under which the corporation is the beneficiary$5,000 Interest revenue on qualified-state or municipal bonds$10,000 Estimated future warranty costs to be paid in Year 2 and Year 3$60,000 Lobo's enacted tax rate for the current and future years is 30%. Lobo has paid income taxes of $170,000 for the three-year period ended December 31, Year 1. There were no temporary differences in prior years.The deferred tax benefit to be applied against current income tax expense is a) $18,000 b) $19,500 c) $22,500 d) $21,000

a) $18,000

Vasquez Corp.'s 2017 income statement showed pretax accounting income of $2,040,000. To compute the federal income tax liability, the following 2017 data are provided: Income from exempt municipal bonds: $ 110,000 Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes: 144,000 Estimated federal income tax payments made: 330,000 Enacted corporate income tax rate: 30% What amount of current federal income tax liability should be included in Vasquez's December 31, 2017 balance sheet? a. $205,800 b. $249,000 c. $271,800 d. $282,000

a. $205,800

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates? I. Accrual for product warranty liability. II. Subscriptions received in advance. III. Prepaid insurance expense. a. I and II only. b. I and III only. c. III only. d. II only.

a. I and II only.

Which of the following are temporary differences that are normally classified as expenses or losses and are deductible after they are recognized in financial income? a. Product warranty liabilities. b. Advance rental receipts. c. Fines and expenses resulting from a violation of law. d. Depreciable property.

a. Product warranty liabilities

Taxable income of a corporation a. differs from accounting income because companies use the full accrual method for financial reporting but use the modified cash basis for tax reporting. b. is based on generally accepted accounting principles. c. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination. d. is reported on the corporation's income statement.

a. differs from accounting income because companies use the full accrual method for financial reporting but use the modified cash basis for tax reporting.

The deferred tax expense is the a. increase in balance of deferred tax liability from the beginning to the end of the accounting period. b. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability. c. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability. d. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.

a. increase in balance of deferred tax liability from the beginning to the end of the accounting period

A deferred tax asset represents the: a. increase in taxes saved in future years as a result of deductible temporary differences. b. increase in taxes payable in future years as a result of deductible temporary differences. c. decrease in taxes payable in previous years as a result of cumulative temporary differences. d. decrease in taxes saved in future years as a result of deductible temporary differences.

a. increase in taxes saved in future years as a result of deductible temporary differences.

Income tax expense is computed as income tax payable: a. plus or minus the change in deferred income taxes. b. less a decrease in a deferred tax asset. c. plus or minus the change in provision for income taxes. d. less an increase in a deferred tax liability.

a. plus or minus the change in deferred income taxes.

Income tax expense is based on: a. pretax income. b. taxable income. c. operating income. d. income from continuing operations.

a. pretax income.

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be a. reported as an adjustment to income tax expense in the period of change. b. considered, but it should only be recorded in the accounts if it reduces a deferred tax liability or increases a deferred tax asset. c. 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. d. handled retroactively in accordance with the guidance related to changes in accounting principles.

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

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if a. the future tax rates have been enacted into law. b. it appears likely that a future tax rate will be greater than the current tax rate. c. it appears likely that a future tax rate will be less than the current tax rate. d. it is probable that a future tax rate change will occur.

a. the future tax rates have been enacted into law.

Future deductible amounts will cause: a. the recording of a deferred tax asset. b. a decrease in pretax financial income in future years. c. taxable income to be more than pretax financial income in the future. d. the recording of a deferred tax liability.

a. the recording of a deferred tax asset.

For the year ended December 31, year 3, Colt Corp. has a loss carryforward of $180,000 available to offset future taxable income. At December 31, year 3, all available evidence concerning future profitability is positive. Assume an income tax rate of 30%. What amount of the tax benefit should be reported in Colt's year 3 income statement? a. $0 b. $ 54,000 c. $180,000 d. $126,000

b. $ 54,000

Pharoah Company made the following journal entry in late 2021 for rent on property it leases to Danford Corporation. Cash 154000 Unearned Rent Revenue 154000 The payment represents rent for the years 2022 and 2023, the period covered by the lease. Pharoah Company is a cash basis taxpayer. Pharoah has income tax payable of $234000 at the end of 2021, and its tax rate is 25%.What amount of income tax expense should Pharoah Company report at the end of 2021? a. $272500 b. $195500 c. $118500 d. $214750

b. $195500

Sheridan Company deducts insurance expense of $189000 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 $63000 of insurance expense will be reported for accounting purposes in each of these years. Sheridan Company has a tax rate of 20% and income taxes payable of $166000 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? a. $11500 b. $37800 c. $33200 d. $0

b. $37800

Crane, Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Installment income of $3550000 will be collected in the following years when the enacted tax rates are: Collection of Income Enacted Tax Rates 2020: $410000; 25% 2021: 710000; 20% 2022: 999000; 20% 2023: 1431000; 15% The installment income is Crane's only temporary difference. What amount should be included in the deferred income tax liability in Crane's December 31, 2020 balance sheet? a. $677950 b. $556450 c. $887500 d. $785000

b. $556450

Which of the following is not considered a permanent difference? a. Premiums paid for life insurance on a company's CEO when the company is the beneficiary. b. Stock-based compensation expense. c. Fines resulting from violating the law. d. Interest received on municipal bonds.

b. Stock-based compensation expense.

Temporary differences arise when revenues are taxable After they are recognized in financial income Before they are recognized in financial income a. No No b. Yes Yes c. Yes No d. No Yes

b. Yes Yes

Under the asset-liability method, a deferred income tax asset or liability is usually classified as a a. current or non-current according to the expected reversal date of the temporary difference. b. non-current asset or liability. c. current or non-current based on the classification of the related asset (liability) for financial reporting purposes. d. current asset.

b. non-current asset or liability.

The last step (procedure) in the computation of deferred income taxes is to a. measure the total deferred tax asset (liability) using the appropriate tax rate. b. reduce deferred tax assets by a valuation allowance if necessary. c. identify the types and amounts of existing temporary differences. d. measure deferred tax assets for each type of tax credit carryforward.

b. reduce deferred tax assets by a valuation allowance if necessary.

Recognition of tax benefits in the loss year due to a loss carryforward requires a. only a note to the financial statements. b. the establishment of a deferred tax asset. c. the establishment of an income tax refund receivable. d. the establishment of a deferred tax liability.

b. the establishment of a deferred tax asset.

balance sheet

balance sheet

Wildhorse 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: $2835000 Estimated litigation expense: 3835000 Extra depreciation for taxes: (5838000) Taxable income: $ 832000 The estimated litigation expense of $3835000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1946000 in each of the next 3 years. The income tax rate is 20% for all years.Income taxes payable is a. $0. b. $400600. c. $166400. d. $600600.

c. $166400.

Cullumber Company reported the following results for the year ended December 31, 2021, its first year of operations: Income (per books before income taxes): $2049000 Taxable income: $3250000 The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2022. What should Cullumber 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? a. $360300 deferred tax asset b. $300250 deferred tax liability c. $300250 deferred tax asset d. $360300 deferred tax liability

c. $300250 deferred tax asset

Hopkins Corp.'s 2017 income statement showed pretax accounting income of $1,035,000. To compute the federal income tax liability, the following 2017 data are provided: Income from exempt municipal bonds: $41,000 Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes: 97,000 Estimated federal income tax payments made: 159,500 Enacted corporate income tax rate: 27.5% What amount of current federal income tax liability should be included in Hopkins' December 31, 2017 balance sheet? a. $109,275 b. $163,075 c. $87,175 d. $132,578

c. $87,175

Uncertain tax positions I. Are positions for which the tax authorities may disallow a deduction in whole or in part. II. Include instances in which the tax law is clear and in which the company believes an audit is likely. III. Give rise to tax expense by increasing payables or increasing a deferred tax liability. a. I, II, and III. b. II only. c. I only. d. I and III only.

c. I only.

A net operating loss (NOL) occurs for tax purposes in a year when tax-deductible expenses exceed taxable revenues. Companies can reduce future taxable income on the amount of NOL in the following way: a. must always be carried back 2 years. b. may be carried back 2 years or carried forward up to 20 years. c. may carry the net operating loss forward indefinitely. d. must always be carried forward 20 years.

c. may carry the net operating loss forward indefinitely.

A valuation account is used to: a. reduce a deferred tax liability. b. increase a deferred tax liability. c. reduce a deferred tax asset. d. increase a deferred tax asset.

c. reduce a deferred tax asset.

All of the following are examples of temporary differences that result in taxable amounts in future years except: a. investments accounted for under the equity method. b. installment sales. c. subscriptions received in advance. d. long-term construction contracts (percentage-of-completion).

c. subscriptions received in advance.

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if a. it appears likely that a future tax rate will be less than the current tax rate. b. it is probable that a future tax rate change will occur. c. the future tax rates have been enacted into law. d. it appears likely that a future tax rate will be greater than the current tax rate.

c. the future tax rates have been enacted into law.

Oriole 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: $930000 Estimated litigation expense: 2550000 Installment sales: (2040000) Taxable income: $1440000 The estimated litigation expense of $2550000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1020000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1020000 current and $1020000 noncurrent. The income tax rate is 20% for all years.The income tax expense is a. $1020000. b. $510000. c. $288000. d. $186000.

d. $186000.

Sunland Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2021: $3000000 Tax exempt interest: (156000) Originating temporary difference: (462000) Taxable income: $2382000 The temporary difference will reverse evenly over the next 2 years at an enacted tax rate of 30%. The enacted tax rate for 2021 is 20%. What amount should be reported in its 2021 income statement as the current portion of its provision for income taxes? a. $714600 b. $900000 c. $600000 d. $476400

d. $476400

Carla Vista Corp. prepared the following reconciliation of income per books with income per tax return for the year ended December 31, 2021: Book income before income taxes: $2770000 Add temporary difference Construction contract revenue which will reverse in 2022: 247000 Deduct temporary difference Depreciation expense which will reverse in equal amounts in each of the next four years: (976800) Taxable income: $2040200 Carla Vista's effective income tax rate is 25% for 2021. What amount should Carla Vista report in its 2021 income statement as the current provision for income taxes? a. $61750 b. $692500 c. $754250 d. $510050

d. $510050

Which of the following should be disclosed in a company's financial statements related to deferred taxes? I.The types and amounts of existing temporary differences. II.The types and amounts of existing permanent differences. III.The nature and amount of each type of operating loss and tax credit carryforward. a. II and III only. b. I, II, and III. c. I and II only. d. I and III only.

d. I and III only.

Gulfport Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Gulfport would be a. making installment sales during the year. b. a balance in the Unearned Rent account at year-end. c. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes. d. a fine resulting from violations of OSHA regulations.

d. a fine resulting from violations of OSHA regulations.

On December 31, 2017, Winston Inc. has determined that it is more likely than not that $240,000 of a $600,000 deferred tax asset will not be realized. The journal entry to record this reduction in asset value will include a a. debit to Income Tax Payable of $240,000. b. credit to Income Tax Expense for $360,000. c. debit to Income Tax Expense for $360,000. d. credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000.

d. credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000.

All of the following are examples of temporary differences that result in tax deductions (benefits) in future years, except: a. estimated liabilities related to discontinued operations. b. product warranty liabilities. c. litigation accruals. d. depreciable property.

d. depreciable property.

Deferred tax expense is the: a. amount of income taxes payable for the period. b. decrease in a deferred tax liability. c. increase in a deferred tax asset. d. increase in a deferred tax liability.

d. increase in a deferred tax liability.

A deferred tax liability represents the a. decrease in taxes saved in future years as a result of deductible temporary differences. b. decrease in taxes payable in future years as a result of taxable temporary differences. c. increase in taxes saved in future years as a result of deductible temporary differences. d. increase in taxes payable in future years as a result of taxable temporary differences.

d. increase in taxes payable in future years as a result of taxable temporary differences.

A deferred tax liability represents the: a. decrease in taxes payable in future years as a result of taxable temporary differences. b. decrease in taxes saved in future years as a result of deductible temporary differences. c. increase in taxes saved in future years as a result of deductible temporary differences. d. increase in taxes payable in future years as a result of taxable temporary differences.

d. increase in taxes payable in future years as a result of taxable temporary differences.

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount for financial statement reporting if a. it appears likely that a future tax rate will be less than the current tax rate. b. it appears likely that a future tax rate will be greater than the current tax rate. c. it is probable that a future tax rate change will occur. d. the enacted tax rate is expected to apply in future years.

d. the enacted tax rate is expected to apply in future years.

A deferred tax liability represents the decrease in taxes payable in future years as a result of a taxable temporary difference. True False

false

A loss carryback may be foregone and used as a loss carryforward for up to 25 years. True False

false

Companies should classify deferred tax accounts on the balance sheet as current assets or current liabilities. True False

false

Fines and penalties resulting from a violation of law result in deferred tax assets. True False

false

Permanent differences result in deferred tax consequences. True False

false

Pretax financial income is determined according to the Internal Revenue Code. True False

false

Taxable temporary differences give rise to recording deferred tax assets. True False

false

income statement

income statement

journal entry

journal entry

matching

matching

A deferred tax liability is the deferred tax consequence attributable to taxable temporary differences. True False

true

Companies should consider both positive and negative evidence to determine whether it needs to record a valuation allowance to reduce a deferred tax asset. True False

true

Proceeds from life insurance carried by the company on key officers or employees is an example of a permanent difference. True False

true

The valuation allowance account should be evaluated at the end of each accounting period. True False

true

Under GAAP, companies using the asset-liability method should classify all deferred taxes as non-current. True False

true