CH 19

a. True

A deferred tax asset is the deferred tax consequence attributable to deductible temporary differences. a. True b. False

a. future tax benefit

A deferred tax asset represents a a. future tax benefit b. future tax liability c. future tax expense d. future taxable amount

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. increase in taxes saved in future years as a result of deductible temporary differences c. decrease 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. a deferred tax asset only

A deferred tax valuation allowance account is used to recognize a reduction in a. a deferred tax liability only b. income tax expense c. both a deferred tax asset and a deferred tax liability d. a deferred tax asset only

b. False

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

c. depreciable property

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

b. As a liability of $100,000

As a result of differences between depreciation for financial-reporting purposes and tax purposes, the financial-reporting basis of Noor Co.'s sole depreciable asset, acquired in 2017, exceeded its tax basis by $250,000 at December 31, 2017. This difference will reverse in future years. The enacted tax rate is 30% for 2017, and 40%for future years. Noor has no other temporary differences. In its December 31, 2017 balance sheet, how should Noor report the deferred tax effect of this difference? a. As a liability of $75,000 b. As a liability of $100,000 c. As an asset of $75,000 d. As an asset of $100,000

a. A non-current liability of $4,000

At December 31,2017, Bren Co. has the following deferred income tax items: * A deferred income tax liability of $15,000 related to a non-current asset * A deferred income tax asset of $3,000 related to a non-current liability. * A deferred income tax asset of $8,000 related to a current liability Which of the following should Bren report in the non-current section of its December 31, 2017 balance sheet? a. A non-current liability of $4,000 b. A non-current asset of $3,000 and a non-current liability of $15,000. c. A non-current liability of $12,000 d. A non-current asset of $11,000 and a non-current liability of $15,000

d. $95,000

Black Co. organized on January 2, 2017, had pre-tax financial statement income of $500,000 and taxable income of $800,000 for the year ended December 31, 2017. The only temporary differences are accrued product-warranty costs, which Black expects to pay as follows: 2018 $100,000 2019 $50,000 2020 $50,000 2021 $100,000 The enacted income tax rates are 25% for 2017, 30% for 2018 through 2020, and 35% for 2021. Black believes that future years' operations will produce profits. In its December 31, 2017 balance sheet, what amount should Black report as deferred tax asset? a. $90,000 b. $ 50,000 c. $75,000 d. $95,000

b. $12,000

Brass Co. reported income before income tax expense of $60,000 for 2017. Brass had no permanent or temporary timing differences for tax purposes. Brass has an effective tax rate of 30% and a $40,000 net operating loss carry-forward from 2016. What is the maximum income tax benefit that Brass can realize from the loss carry-forward for 2017? a. $40,000 b. $12,000 c. $18,000 d. $20,000

a. True

Companies should classify the balances in the deferred tax accounts on the balance sheet as non-current assets and non-current liabilities. a. True b. False

d. future tax rates if they have been enacted into law

Deferred income taxes are based on the: a. current tax rate in all cases b. future tax rates in all cases c. current tax rate or future tax rates, depending on when the temporary difference will reverse d. future tax rates if they have been enacted into law

a. increase in a deferred tax liability

Deferred tax expense is the: a. increase in a deferred tax liability b. decrease in a deferred tax asset. c. decrease in a deferred tax liability d. none of the above

b. 28.5%

Fern Co. has net income, before taxes, of $200,000, including $20,000 interest revenue from municipal bonds and $10,000 paid for officers' life insurance premiums where the company is the beneficiary. The tax rate for the current year is 30%. What is Fern's effective tax rate? a. 27.0% b. 28.5% c. 30.0% d. 31.5%

a. $195,000

For the year ended December 31, 2017, Tyre Co. reported pre-tax financial statement income of $750,000. Its taxable income was $650,000. The difference is owing to accelerated depreciation for income tax purposes. Tyre's effective income tax rate is 30%, and Tyre made estimated tax payments during 2017 of $90,000. What amount should Tyre report as current income tax expense for 2017? a. $195,000 b. $105,000 c. $225,000 d. $135,000

d. a fine resulting from violations of OSHA regulations.

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. $87,175

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. $132,578 b. $109,275 c. $163,075 d. $87,175

b. $689,000

Howe Corporation has income before income taxes of $1,064,000 in 2017. The current provision for income taxes is $210,000 and the provision for deferred income taxes is $165,000. Howe's net income for 2017 is a. $854,000 b. $689,000 c. $1,019,000 d. $899,000

c. average rates

In computing deferred income taxes for which graduated tax rates are a significant factor, companies are required to use the: a. incremental rates b. graduated rates c. average rates d. actual rates.

b. $39,000

In its 2017 income statement, Tow, Inc. reports proceed from an officer's life-insurance policy of $90,000 and depreciation of $250,000. Tow was the owner and beneficiary of the life insurance on its officer. Tow deducted depreciation of $370,000 in its 2017 income tax return when the tax rate was 30%. Data related to the reversal of the excess tax deduction for depreciation follow: Year Reversal of excess tax deduction Enacted tax rates 2018 $50,000 35% 2019 $40,000 35% 2020 $20,000 25% 2021 $10,000 25% There are no other temporary differences. Tow elected early application of FASB Statement No. 109. Accounting for Income Taxes. In its December 31, 2017 balance sheet, what amount should Tow report as a deferred income tax liability? a. $63,000 b. $39,000 c. $66,000 D $36,000

b. pretax income.

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

b. $0

Lake Corp., a newly organized company, reported pre-tax financial income of $100,000 for 2017. Among the items reported in Lake's 2017 income statement are the following: Premium on officer's life insurance with Lake as owner and beneficiary $15,000 Interest received on municipal bonds 20,000 Lake elected early application of FASB Statement No. 109, Accounting for Income Taxes. The enacted tax rate for 2017 is 30%and 25% thereafter. In its December 31, 2017 balance sheet, Lake should report a deferred income tax liability of a. $4,500 b. $0 c. $28,500 d. $3,750

yes;yes

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in Future Taxable Amounts; Future Deductible Amounts yes;yes yes;no no;yes no;no

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

On December 31, 2017, Winston Inc. has determine 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 Expense for $360,000 b. debit to Income Tax Payable of $240,000 c. credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000. d. credit to Income Tax Expense for $360,000

b. $10,000

On its December 31, 2017 sheet, Shin Co. has income tax payable of $13,000 and a current deferred tax asset of $20,000, before determining the need for a valuation account. Shin had reported a current deferred tax asset of $15,000 at December 31, 2016. No estimated tax payments are made during 2017. At December 31, 2017, Shin determines that it is more likely than not that 10% of the deferred tax asset would not be realized. In its 2017 income statement, what amount should Shin report as total income tax expense? a. $8,500 b. $10,000 c. $8,000 d. $13,000

d. $30,800

Pringle Corporation reported $200,000 in revenues in its 2016 financial statements, of which $88,000 will not be included in the tax return until 2017. The enacted tax rate is 40% for 2016 and 35% for 2017. What amount should Pringle report for deferred income tax liability in its balance sheet at December 31, 2016? a. $39,200 b. $44,800 c. $35,200 d. $30,800

a. True

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

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

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

d. asset-liability method

The FASB believes that the most consistent method for accounting for income taxes is the: a. benefit-obligation method b. temporary-permanent method c. carryback-carryforward method d. asset-liability method

a. True

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

a. True

To determine the deferred tax expense (benefit), the beginning and ending balances of the deferred income tax accounts need to be compared. a. True b. False

b. False

Under IFRS, the balances in the deferred tax accounts on the balance sheet are classified as current assets and current liabilities. a. True b. False

d. in two amounts: one for the net debit amount and one for the net credit amount

Under the asset-liability method, deferred taxes should be presented on the balance sheet a. as reductions of the related asset or liability accounts. b. as one net debit or credit amount. c. as either net noncurrent deferred tax assets or noncurrent deferred tax liabilities d. in two amounts: one for the net debit amount and one for the net credit amount

b. False

Under the asset-liability method, the measurement of current and deferred tax liabilities and assets based on provisions of the anticipated future tax law. a. True b. False

b. False

Unlike GAAP, IFRS does not use the asset-liability approach for recording deferred taxes a. True b. False

a. True

Using the asset-liability method, companies should classify the balances in the deferred tax accounts on the balance sheet as current and non-current based on the classification of related assets and liabilities. a. True b. False

a. $205,800

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. $271,800 c. $249,000 d. $282,000

c. $345,00 deferred tax asset

Weatherly Company reported the following results for the year ended December 31, 2016, its first year of operations: Income (per books before income taxes)$3,300,000 Taxable income 4,450,000 The disparity between book income and taxable income is attributable to a temporary difference, which will reverse in 2017. What should Weatherly record as a net deferred tax asset or liability for the year ended December 31, 2016, assuming that the enacted tax return in effect are 35% in 2016 and 30% in 2017? a. $345,000 deferred tax liability b. $402,500 deferred tax liability c. $345,00 deferred tax asset d. $402,500 deferred tax asse

d. all of these answer choices are correct

When accounting for income taxes, the differences between IFRS and U.S. GAAP involve: a. a few exceptions to the asset-liability approach b. some minor differences in the recognition, measurement, and disclosure criteria c. differences in the allocation of deferred income taxes. d. all of these answer choices are correct

a. The benefit due to a loss carryforward can be reported in both the loss year and future years

Which of the following statements related to loss carrybacks and carryforwards is correct? a. The benefit due to a loss carryforward can be reported in both the loss year and future years b. The benefit due to a loss carryback is reported only in the second year preceding the loss year. c. The benefit due to a loss carryback can be reported in both the loss year and future years. d. The benefit due to a loss carryforward is reported only in the loss year.