ACC quiz CH16

Pretax financial statement income for the year ended December 31, 2018, was $25 million for Scott Pen Company. Scott's taxable income was $30 million. This was a result of differences between depreciation for financial reporting purposes and tax purposes. The enacted tax rate is 30% for 2018 and 40% thereafter. What amount should Scott report as the current portion of income tax expense for 2018? Multiple Choice $7.5 million $ 9 million $ 10 million $ 12 million

$ 9 million Explanation $30 million × 30% = $9 million.

The pretax financial statement income for Yeager Industries was $32 million the year ended December 31, 2018. Yeager's taxable income was $25 million. The difference was due to differences between depreciation for financial reporting purposes and tax purposes. The enacted tax rate is 40% for 2018 and 35% thereafter. If no 2018 taxes have been paid, what is Yeager's current liability for income taxes for 2018? Multiple Choice $12.8 million $10.0 million $11.2 million $ 8.7 million

$10.0 million Explanation Tax payable = $25 million × 40% = $10 million.

Brown and Lowery, Inc. reported $470 million in income before income taxes for 2018, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $50 million. The firm also had non-tax-deductible expenses of $20 million relating to permanent differences. The income tax rate for 2018 was 35%, but the enacted rate for years after 2018 is 40%. The balance in the deferred tax liability in the December 31, 2018, balance sheet is: $ 8.0 million $17.5 million $20.0 million $28.0 million

$20.0 million Explanation $50 million × 40% = $20 million.

A reconciliation of pretax financial statement income to taxable income is shown below for Shaw-Anderson Industries for the year ended December 31, 2018, its first year of operations. The company offers quality-assurance warranties that extend six months after goods are purchased. The income tax rate is 40%. Pretax accounting income (income statement) $ 640,000 Interest revenue on municipal securities (20,000 ) Warranty expense in excess of deductible amount 45,000 Depreciation in excess of financial statement amount (120,000 ) Taxable income (tax return) $ 545,000 What amount should Shaw-Anderson report as the current portion of income tax expense on its 2018 income statement? $52,000 $218,000 $248,000 $256,000

$218,000 Explanation $545,000 × 40% = $218,000.

A reconciliation of pretax financial statement income to taxable income is shown below for Shaw-Anderson Industries for the year ended December 31, 2018, its first year of operations. The company offers quality-assurance warranties that extend six months after goods are purchased. The income tax rate is 40%. Pretax accounting income (income statement) $ 640,000 Interest revenue on municipal securities (20,000 ) Warranty expense in excess of deductible amount 45,000 Depreciation in excess of financial statement amount (120,000 ) Taxable income (tax return) $ 545,000 What amount should Shaw-Anderson report as the deferred portion of income tax expense on its 2018 income statement? Multiple Choice $18,000 $30,000 $38,000 $56,000

$30,000 Explanation ($45,000 - $120,000) × 40% = $30,000.

At December 31, 2018, the account balances of Dowling, Inc. showed income taxes payable of $38 million and a current deferred tax asset of $60 million before assessing the need for a valuation allowance. The previous year Dowling had reported a current deferred tax asset of $45 million with no valuation allowance. Dowling determined that it was more likely than not that 20% of the deferred tax asset ultimately would not be realized. Dowling made no estimated tax payments during 2018. What amount should Dowling report as total income tax expense in its 2018 income statement? Multiple Choice $12 million. $23 million. $35 million. $38 million.

$35 million. Explanation The tax expense journal entry would include a debit to tax expense, a debit to deferred tax assets of ($60 million - $45 million = $15 million), a credit to tax payable of $38 million, and a credit to a valuation allowance of ($60 million × 20% = $12 million). Therefore, the debit to tax expense would be $35 million.

List Corporation reported pretax accounting income of $90,000, but due to temporary differences, taxable income is only $50,000. Assuming a tax rate of 40%, the income statement should report net income of: Multiple Choice $16,000 $20,000 $36,000 $54,000

$54,000 Explanation $90,000 - ($90,000 × 40%) = $54,000.

Using straight-line depreciation for financial reporting purposes and MACRS for tax purposes creates: Multiple Choice A temporary difference requiring intraperiod tax allocation. A permanent difference not requiring interperiod tax allocation. A deferred tax asset. A deferred tax liability.

A deferred tax liability. Explanation Higher expenses in early years for tax purposes than for financial-reporting purposes gives rise to a deferred tax liability.

The financial reporting carrying amount of Johns-Hopper Company's only depreciable asset exceeded its tax basis by $750,000 at December 31, 2018. This was a result of differences between depreciation for financial reporting purposes and tax purposes. The asset was acquired earlier in the year. Johns-Hopper has no other temporary differences. The enacted tax rate is 30% for 2018 and 40% thereafter. Johns-Hopper should report the deferred tax effect of this difference in its December 31, 2018, balance sheet as: A liability of $ 225,000. A liability of $300,000. An asset of $ 225,000. An asset of $300,000.

A liability of $300,000. Explanation $750,000 × 40% = $300,000, and since the financial reporting amount exceeds the tax basis, this is a deferred tax liability.

A reconciliation of pretax financial statement income to taxable income is shown below for Shaw-Anderson Industries for the year ended December 31, 2018, its first year of operations. The company offers quality-assurance warranties that extend six months after goods are purchased. The income tax rate is 40%. Pretax accounting income (income statement) $ 640,000 Interest revenue on municipal securities (20,000 ) Warranty expense in excess of deductible amount 45,000 Depreciation in excess of financial statement amount (120,000 ) Taxable income (tax return) $ 545,000 What amount should Shaw-Anderson report as a current item related to deferred income taxes on its 2018 balance sheet? Multiple Choice Deferred income tax liability of $18,000. Deferred income tax liability of $30,000. Deferred income tax asset of $18,000. Deferred income tax asset of $30,000.

Deferred income tax asset of $18,000. Explanation $45,000 × 40% = $18,000, which is a current deferred tax asset.

Print Item 10 Item 10 At December 31, 2018, Control Enterprises had the following deferred income tax items: Deferred income tax liability of $24 million related to a current asset Deferred income tax asset of $18 million related to a current liability Deferred income tax liability of $40 million related to a noncurrent asset Deferred income tax asset of $12 million related to a noncurrent liability Control Enterprises should report in its December 31, 2018, balance sheet a: Multiple Choice Noncurrent asset of $30 million and a non-current liability of $64 million. Current asset of $6 million. Noncurrent asset of $28 million and a non-current liability of $15 million. Noncurrent liability of $34 million.

Noncurrent liability of $34 million. Explanation $64 million - $30 million = $34 million.

Temporary differences arise when expenses are reported in the income statement: After they are Before they are deductible for deductible for tax purposes tax purposes a. Yes Yes b. Yes No c. No No d. No Yes Option a Option b Option c Option d

Option a Explanation Temporary differences occur when there is difference in timing between when expenses are deductible on the income statement and recognized on the income statement.

The income tax benefit of an operating loss carryforward is recognized in the year the loss occurs: Multiple Choice Unless it's more likely than not that the future tax savings will not be realized. Unless there is no taxable income in the two previous years. When the loss year is the company's first year of operations. Always.

Unless it's more likely than not that the future tax savings will not be realized.