chapter 18 intermediate acct

Horner Corporation has a deferred tax asset at December 31, 2026 of $200,000 due to the recognition of potential tax benefits of an operating loss carryforward. Assuming that management expects that only 50% of the related benefits will be realized, a valuation account should be established in the amount of a. $100,000. b. $40,000. c. $35,000. d. $30,000

100000 = 200000 * 50%

Unlike GAAP. IFRS does not use the asset-liability approach for recording deferred taxes.

false

343800 deferred tax asset

4471000 less 3325000 * 30%(enacted tax rate to apply)

what amount should Wildhorse report for deferred income tax liability in its balance sheet at December 31, 2021?

90300 * 35% enacted tax rate for 2022. = 31605 calculate the LIABILITY for 2022, using what is not to be included in the current year. "deferred"

Which of the following statements is true with regards to IFRS and GAAP?

the tax effects related to certain items are reported in equity under GAAP, under IFRS< the tax effects are charged or credited to income

For calendar year 2025, Kane Corp. reported depreciation expense of $1,600,000 in its income statement. On its 2025 income tax return, Kane reported depreciation expense of $2,400,000. Kane's income statement also included $300,000 accrued warranty expense that will be deducted for tax purposes when paid. Kane's enacted tax rates are 20% for 2025 and 2026, and 15% for 2027 and 2028. The depreciation difference and warranty expense will reverse over the next three years as follows: Depreciation Difference Warranty Expense 2026 $320,000 $ 60,000 2027 280,000 100,000 2028 200,000 140,000 $800,000 $300,000 These were Kane's only temporary differences. In Kane's 2025 income statement, the deferred portion of its provision for income taxes should be

88000

which of the following is a permanent difference

Interest received on state and municipal obligations.

Pharaoh's net income for 2022 is

Net income: income before income tax - (current provision for income taxes + provision for deferred income taxes) = 671000

when a temporary difference causes a decrease in future payments

a deferred tax asset is created

A deferred tax valuation allowance account is used to recognize a reduction in

a deferred tax asset only

a deferred tax valuation allowance account

a deferred tax asset only

corporations 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 company would be

a fine resulting from OSHA violations

Stuart 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 Stuart would be a. a balance in the Unearned Rent account at year end. b. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes. c. a fine resulting from violations of OSHA regulations. d. making installment sales during the year.

a fine resulting from violations of osha regulations

1. assuming a 40% statutory tax rate applied to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet

a revenue is deferred for tax purposes but NOT for tax purposes and an expense is deferred for financial reporting purposes but not for tax purposes

which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates

accrual for product warranty liability AND subscriptions received in advance

deferred tax should be presented on the balance sheet

as a non current amount

under the asset liability method deferred taxes should be presented on the balance sheet

as either net noncurrent deferred tax assets or noncurrent deferred tax liabilities.

the FASB believes that the most consistent method for accounting for income taxes is the

asset-liability method

In computing deferred income taxes for which graduated tax rates are a significant factor, companies are required to use the:

average rates -when graduated tax rates are a significant factor, companies must determine the AVERAGE tax rate and use that rate. the graduated tax rate should not be used.

the journal entry to record this reduction in asset value will include a

credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of 262000. a company reduces a deferred tax asset by a valuation account if it more likely than not that it will not realize some portion or all of the deferred asset.

Palmer Co. had a deferred tax liability balance due to a temporary difference at the beginning of 2014 related to $1,500,000 of excess depreciation. In December of 2014, a new income tax act is signed into law that lowers the corporate rate from 30% to 25%, effective January 1, 2016. If taxable amounts related to the temporary difference are scheduled to be reversed by $750,000 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

decrease by 37,500 750,000 * .3 = 225000 750,000 * .25= 187500 = a 37,500 decrease

deferred tax expense is the total amount of income taxes that will be payable in the subsequent fiscal period

false

permanent differences results in deferred tax consequences

false - when a difference is permanent there can be no subsequent consequences - temporary differences, not permanent, result in deferred tax consequences

using the asset-liability method, deferred taxes should be classified into a net current amount and a net non-current amount

false using the asset-liability method deferred taxes should be classified as a net non-current amount

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

false - it is based on the provisions of the enacted tax law

Stephens company is preparing its financial reporting according to IFRS. the company has a deferred tax asset of 600,000. it can be classified as a current asset, unlike GAAP which would require it to be classified as non-current.

false the classification under BOTH IFRS and GAAP is ALWAYS non-current

taxable temporary differences give rise to recording deferred tax assets

false, it would be deferred tax liabilities

the amount that Pharaoh Inc. reports as a net loss for financial reporting purposes in 2020, assuming that is uses the carryback provisions, and that the tax rate is 30% for all periods affected, is:

financial loss - benefit due to carryback of (year 1 + year 2) at tax rate = 535800 756000 - (316000*.3 + 418000*.3) 756000 - 220200 = 535800 loss

a deferred tax asset represents a

future tax benefit

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in

future taxable amounts AND future deductible amounts

assuming that Wilcox elects to use the carryforward provision and not the carryback provision what income/loss is reported in 2025.

income tax refund receivable on loss carryback: 2024 income * tax rate = 300000 * .2 = 60000 deferred tax asset: (2025 loss - 2024 income) * 2026 tax rate (2700000 - 300000) * .3 = 720000 income loss reported in 2025= (60000 + 720000) - 2700000 =1920000

a deferred tax expense is the

increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.

a deferred tax liability represents the

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

a deferred tax liability represents the

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

a deferred tax asset represents the

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

what is Elephants deferred tax liability for 2025

installment sales profit to be taxed * tax rate prepaid rent expenses * tax rate deferred tax liability = sum of two 130,000 * .2 = 26000 60,000 * .2 = 12000 = $38,000

with regards to uncertain tax positions, the FASB requires that companies recognize a tax benefit when

it is more likely that not that the tax position will be sustained upon audit

what amount should Blossom report in its 2021 income statement as the deferred portion of the provision for income taxes

originating temporary difference (709000) * enacted tax rate of 35%. the tax rate of 2021 should not be used.

what is Elephants taxable income

pre tax accounting income: 1500000 less: interest income from municipal bonds: 120000 add: accrued warranty costs: 260000 less: operating loss carryforward: 190000 less: taxes on installment profit: 130000 less: taxes on prepaid rent: 60000 = taxable income of 1260000

for 2021, what is the amount of income taxes payable for Sunland, Inc.

pre tax income + rent receipt - bond income - depreciation adjustment - installment sales revenue * tax rate = tax liability or income taxes payable = 586495

what amount of federal current income tax liability should be included in Wildhorse December 31, 2021 balance sheet?

pretax accounting income - income from exempt municipal bonds - depreciation adjustment * tax rate - federal income tax payments made = current federal income tax liability

what amount of current federal income tax liability should be included in Cullumber's December 31, 2021 balance sheet?

pretax accounting income - income from exempt municipal bonds - depreciation adjustment, times tax rate, minus tax payments made = answer of income tax liability at December 31, 2021. 20680000 - 125000 - 169000 = 1774000 *30% = 532200, - 375000 = 157200

income tax expense is based on

pretax income

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?

product warranty liabilities - depreciable property is a temporary difference normally classified as an expense or loss that is deductible before, not after, it is recognized in financial income. - fines and expenses resulting from a violation of law is an item recognized for financial reporting purposes but not for tax purposes, known as a permanent difference, not a temporary difference - advance rental receipts are temporary differences normally classified as revenues or gains before they are recognized in financial income.

a valuation account is used to

reduce a deferred tax asset.

the last procedure or step in the computation of deferred income taxes is

reduce deferred tax assets by a valuation allowance if necessary

on Blossom's December 31, 2021, statement of financial position it will

report 292000 non current deferred tax asset (deferred tax asset of advanced rent - deferred tax liability of depreciation - deferred tax liability of income + deferred tax asset of warranty liabilities) 652300-330600-66900+37200= 292000 non- current deferred tax asset

Taxable amounts are temporary differences that:

require the recording of a deferred tax liability

income tax payable is based (computed) on:

taxable income

income tax expense is determined based on all of the following except

taxable income income tax expense is determined based on pretax financial income, income for financial reporting purposes, and income for book purposes. income taxes PAYABLE, not income tax expense, is determined based on taxable income.

which of the following statements related to loss carryback is NOT true

the company may carry the net operating loss back THREE years and receive refunds for income taxes paid in those years - only can be carried back TWO years.

tax rates other than the current tax rate may be used to calculate the deferred income tax amount for financial statement reporting if

the enacted tax rate is expected to apply in future years

under IFRS

the enacted tax rate or substantially enacted tax rate is used

recognition of tax benefits in the loss year due to a loss carryforward requires

the establishment of a deferred tax ASSET

deferred tax expense is the increase in a deferred tax liability but does not represent the

total amount of taxes that will become payable in a subsequent fiscal period

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

true

all potential liabilities must be recognized under IFRS, and an expected value approach is used to measure the tax liability.

true

Which of the following statements is false?

under GAAP, deferred taxes are reported based on the classification of the asset or liability to which it relates.