Test 3

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,700,000. In the first year of the contract Tullis incurs $2,100,000 of cost and the engineers determined that the remaining costs to complete the project are $4,900,000. Tullis billed $4,000,000 in year 1 and collected $3,500,000 by the end of the end of the year. How much gross profit should Tullis recognize in Year 1 assuming the use of the completed-contract method? A. $0 B. $3,700,000 C. $1,900,000 D. $7,000,000

A. $0

Lyon Group's income before taxes is $420,000 and its tax rate is 40%. Lyon included $30,000 in fines and penalties in the $420,000. There are no other book-tax differences. What is income tax payable for Lyon Group? A. $180,000 B. $168,000 C. $12,000 D. $156,000

A. $180,000

S & C Company reported $220,000 depreciation on its 2018 tax return. However, they reported $40,000 depreciation expense on their 2018 income statement. The difference in depreciation is a temporary difference that will reverse over time. Assuming S & C's tax rate is constant at 20%, what amount should be added to the deferred income tax liability in S & C's December 31, 2018, balance sheet? A. $36,000 B. $8,000 C. $44,000 D. $52,000

A. $36,000

Infinity Production acquired a new machine at the beginning of the current year. The machine cost $840,000 with no residual value expected. Infinity uses the straight-line method for financial reporting, assuming a 6-year useful life (full year in the first year). The firm classifies the equipment as 5-year MACRS property for tax purposes using the following MACRS percentages. Yr1 20.00%, Yr2 32.00%, Yr3 19.20%, Yr4 11.52%, Yr5 11.52%, Yr6 5.76%, The company is subject to a 20% income tax rate and has no other book-tax differences. Income before depreciation and tax is presented below: Yr1 $450,000, Yr2 $500,000, Yr3 $570,000, Yr4 $700,000, Yr5 $820,000, Yr6 $950,000, What is Infinity's deferred tax asset or deferred tax liability at the end of year 3? A. $38,160 deferred tax liability B. $2,760 deferred tax liability C. $2,760 deferred tax asset D. $38,160 deferred tax asset

A. $38,160 deferred tax liability

Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $130,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12 month period. Jones estimates that it has a 60% chance of earning the $130,000 bonus. Ignore any constraints on variable consideration. Refer to Jones Corporation. Using the most-likely-amount approach, the transaction price would be ________. A. $380,000 B. $328,000 C. $130,000 D. $250,000

A. $380,000

Greenville Industries uses the accrual basis to account for all sales transactions. Sales for 2018 total $540,000. Included in this amount is $15,000 in receivables from sales on installment. Installment sales are considered revenue for book purposes, but not for tax purposes. Operating expenses total $140,000 and are treated the same for book and tax purposes. What is Greenville's taxable income? A. $385,000 B. $400,000 C. $525,000 D. $540,000

A. $385,000

Infinity Production acquired a new machine at the beginning of the current year. The machine cost $840,000 with no residual value expected. Infinity uses the straight-line method for financial reporting, assuming a 6-year useful life (full year in the first year). The firm classifies the equipment as 5-year MACRS property for tax purposes using the following MACRS percentages. Yr1 20.00%, Yr2 32.00%, Yr3 19.20%, Yr4 11.52%, Yr5 11.52%, Yr6 5.76%, The company is subject to a 20% income tax rate and has no other book-tax differences. Income before depreciation and tax is presented below: Yr1 $450,000, Yr2 $500,000, Yr3 $570,000, Yr4 $700,000, Yr5 $820,000, Yr6 $950,000, What is Infinity's deferred tax asset or deferred tax liability at the end of year 1? A. $5,600 deferred tax liability B. $28,000 deferred tax liability C. $28,000 deferred tax asset D. $672,000 deferred tax asset

A. $5,600 deferred tax liability

S & C Inc.'s income tax payable is $290,000 and its tax rate is 30%. Assuming no book-tax differences, what is S & C's net income? (Round your answer to the nearest whole dollar.) A. $676,667 B. $966,667 C. $87,000 D. $377,000

A. $676,667

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,100,000. In the first year of the contract Tullis incurs $2,900,000 of cost and the engineers determined that the remaining costs to complete the project are $5,100,000. Tullis billed $3,600,000 in year 1 and collected $3,500,000 by the end of the year. How much gross profit should Tullis recognize in Year 1 assuming the use of the percentage-of-completion method? (Round any intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest dollar.) A. $761,250 B. $3,661,250 C. $6,561,250 D. $0

A. $761,250

An automotive magazine charges an annual subscription fee of $300, with customers prepaying the fee. Subscribers receive 50 issues for the annual fee. The publisher provides the new subscribers with a discount coupon good for a 30 percent discount on a race car ride at a major track. The list price of the ride along experience is $200. The company estimates that 35% of the coupons will be utilized. What is the number of performance obligations? A. 2 B. 1 C. 3 D. 4

A. 2

IT Technology enters into a contract with the federal government to create a system for the price of $19 million. IT receives $7.6 million when the contract is signed and the other $11.4 million upon completion of the project. The government maintains control of the system during the creation process. IT estimates that 36,000 labor hours will be required to complete the product. During the current year 10,800 labor hours are used and during the following year, the remaining 25,200 hours were used. What will be included in the journal entry at the end of the current year? (Round any intermediary calculations to the nearest cent, and round your final answer to the nearest dollar.) A. Debit to Unearned revenue for $5,700,024 B. Credit to Service Revenue for $13,299,976 C. Debit to Service Revenue for $5,700,024 D. Credit to Unearned Revenue for $11,400,000

A. Debit to Unearned revenue for $5,700,024

Which of the following statements best describes the effective tax rate? A. It can be calculated by dividing income tax expense by book income before taxes. B. It is calculated as book income divided by taxable income. C. It changes annually based on provisions from Congress. D. It is the legally imposed rate in a given taxing jurisdiction.

A. It can be calculated by dividing income tax expense by book income before taxes.

When a company depreciates a fixed asset at a faster rate for tax purposes than book purposes, this creates a ________. A. deferred tax liability B. lower tax basis than book basis of liabilities in the early years C. higher tax basis than book basis of assets in the early years D. deferred tax asset

A. deferred tax liability

The percentage-of-completion method recognizes gross profit ________. A. over the life of the contract B. one year after completion of contract C. at the end of the contract D. at the beginning of the contract

A. over the life of the contract

If the sum of standalone selling prices is greater than the transaction price, then any discount should be allocated to the performance obligations based on the relative ________. A. standalone selling prices B. net present values C. historical cost D. book values

A. standalone selling prices

Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost $210 each. On January 1, Pemco sold 2,000 memberships and received cash. Refer to Pemco Enterprises. How much revenue should Pemco recognize on January 1? A. $420,000 B. $0 C. $35,000 D. $210,000

B. $0

Gleason Construction enters into a long-term fixed price contract to build an office building for $27,000,000. In the first year of the contract Gleason incurs $5,000,000 of cost and the engineers determined that the remaining costs to complete the project are $24,000,000. How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the percentage-of-completion method? A. $344,828 loss B. $2,000,000 profit C. $2,000,000 loss D. $0

C. $2,000,000 loss

Violet Corporation reported a loss in 2018 of $610,000 and carried back the loss to the extent allowed. The company reported taxable income of $215,000 in 2016 and $245,000 in 2017. It has no permanent or temporary differences and its tax rate is 30%. Violet reported taxable income of $345,000 in 2019. What amount did Violet record for income taxes payable for 2019? A. $45,000 B. $103,500 C. $58,500 D. $183,000

C. $58,500

Companies are required to disclose the amount of income tax expense that is ________. A. noncurrent B. allocated to financial statement elements that are not part of income from continuing operations C. All of the above are disclosed. D. current

C. All of the above are disclosed.

Greene Co. has book income of $425,000, and a tax rate of 30%. Assuming there are no book-tax differences, what will the journal entry be to record the income tax expense? A. Dr Income Tax Payable 127,500, Cr Income Tax Expense 127,500 B. Dr Income Tax Expense 255,000, Cr Income Tax Payable 255,000 C. Dr. Income Tax Expense 127,500, Cr. Income Tax Payable 127,500 D. Dr Income Tax Payable 255,000, Cr Income Tax Expense 255,000

C. Dr. Income Tax Expense 127,500, Cr. Income Tax Payable 127,500

Caesar Corporation reports municipal interest income on their financial statements. What (if any) book-tax difference will result? A. Temporary difference; book income greater than taxable income. B. No difference; municipal interest is taxable income. C. Permanent difference; book income greater than taxable income. D. Temporary difference; taxable income greater than book income.

C. Permanent difference; book income greater than taxable income.

In which of the following instances would a company most likely choose the carryforward option for a net operating loss? A. The company expects lower tax rates in the future compared to the past. B. The company expects higher losses in the future compared to the past. C. The company expects higher tax rates in the future compared to the past. D. The company expects lower earnings in the future compared to the past.

C. The company expects higher tax rates in the future compared to the past.

Companies may use the completed-contract method only if the contract ________. A. is for less than two years B. exceeds five years C. does not meet criteria for percentage-of-completion method D. does not meet criteria for installment sales method

C. does not meet criteria for percentage-of-completion method

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,100,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete the project are $5,000,000. Tullis billed $5,000,000 in year 1 and collected $3,500,000 by the end of the year. How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the completed-contract method? A. $8,500,000 B. $5,000,000 C. $0 D. $1,500,000

D. $1,500,000

Louise paints seascapes and landscapes. In 2019 she placed nine of her most prized paintings with the Wainwright Studio Gallery. The paintings each carried a price of $6,000, and Louise made a deal with the Gallery to pay them a 40% commission on all paintings sold. At the end of the year, three paintings had been sold. How much revenue will Louise recognize on each of the consignment sales? A. $0 B. $2,400 C. $3,600 D. $6,000

D. $6,000

The local Mini Mart makes cash sales of $8,000 on April 5, 2019. The journal entry to record the transaction would be to ________. The firm uses the periodic inventory system. A. Dr Sales Revenue 8,000, Cr Cash 8,000 B. Dr Accounts Receivable 8,000, Cr Sales Revenue 8,000 C. Dr Cash 8,000, Cr Accounts Receivable 8,000 D. Dr Cash 8,000, Cr Sales Revenue 8,000

D. Dr Cash 8,000, Cr Sales Revenue 8,000

Violet, Inc. recorded a deferred tax asset of $43,000 due to a book-tax difference in warranty liabilities. Management has assessed that it is more likely than not that the firm will not realize 45% of the deferred tax asset. What is the necessary journal entry to record the valuation allowance? A. Dr Deferred Tax Asset 19,350, Cr Valuation Allowance for Deferred Tax Asset 19,350 B. Dr Income Tax Expense 43,000, Cr Valuation Allowance for Deferred Tax Asset 43,000 C. Dr Deferred Tax Asset 43,000, Cr Valuation Allowance for Deferred Tax Asset 43,000 D. Dr Income Tax Expense 19,350, Cr Valuation Allowance for Deferred Tax Asset 19,350

D. Dr Income Tax Expense 19,350, Cr Valuation Allowance for Deferred Tax Asset 19,350

If multiple contracts are negotiated as a package and have a single commercial objective, the contracts should be combined and accounted for as ________. A. assets B. liabilities C. multiple contracts D. a single contract

D. a single contract

A seller recognizes the amount of returns from right to return sales as a(n) ________. A. expense B. revenue C. asset D. liability

D. liability

Uncertain tax positions may result in a ________. A. tax refund B. tax deferral C. tax asset D. tax liability

D. tax liability