Chapter 17 Accounting 340

Greenville Industries uses the accrual basis to account for all sales transactions. Sales for 2018 total $560,000. Included in this amount is $25,000 in receivables from sales on installment. Installment sales are considered revenue for book purposes, but not for tax purposes. Operating expenses total $210,000 and are treated the same for book and tax purposes. What is Greenville's tax basis in the installment sale receivable?

$0

Greene Co. has pretax book income for the year ended Dec. 31, 2018 in the amount of $285,000 and has a tax rate of 40%. Depreciation for tax purposes exceeded book depreciation by $13,500. What should Greene Co. record as its federal income tax liability for 2018?

$108,600 285,000 - 13,500=271,500 * 40%= $108,600

TLR Productions reported income before taxes of $205,000 for the years 2016,2017, and 2018. In 2019, they experienced a loss of $500,000. TLR had a tax rate of 35% in 2016 and 2017, and 45% rate in 2018 and 2019. Assuming the company uses the carryback provisions for the NOL, what amount should be reported as Income Tax Refund Receivable in 2019?

$164,000 (2017:) 205,000 * 35% + (2018:) 205,000*45%= $164,000

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?

$180,000 420,000+30,000*0.4

Purrfect Pet Industries' income before taxes is $810,000 and its tax rate is 50%. Purrfect Pet included $50,000 of fully deductible inter-corporate dividends received in the $810,000. There are no other book-tax differences. What is the income tax payable for Purrfect Pet?

$380,000 810,000-50,000*50%

TNT Corporation's income tax payable is $240,000 and its tax rate is 30%. Assuming no book-tax differences, what is TNT's net income?

$560,000 240,000/30%=800,000 - 240,000 = $560,000

The following information applies to the operations of MK Inc. for 2018 and 2019. Assume tax rate of 30% for both years. 2018 Sales on account of $650,000 Warranty expense and associated liability of $105,000 No other expenses incurred 2019 Sales on account of $225,000 Warranty repairs made of $68,000 No other expenses incurred What is MK's taxable income for 2018?

$650,000 B/c tax says you don't worry about liabilities till you have to. $)

In 2017, Squirrel Corp. recorded book income of $165,000. It has on temporary difference which relates to a $30,000 warranty expense that it recorded for book purposes, and no permanent differences. Squirrel anticipates satisfying this liability equally over the following two years. The current enacted tax rate is 36%. The enacted tax rates for the following years are 2017: 26%, 2018: 31% 2019: 26% 2020: 36%. Under U.S. GAAP what deferred tax amount should Squirrel Corp. record for this temporary difference?

$8,550 150,000*0.31=4650 150,000*0.26=3900 4650+3900=$8,550

Kravitz corporation had income before taxes of $900,000 and a tax rate of 45%. Included in the income are $80,000 in municipal bond interest and $10,000 in fines and penalties. There are no other book-tax differences. What is Kravitz's taxable income?

$830,000 900,000-80,000+10,000

Danio Inc's income before taxes is $550,000 and its tax rate is 30%. Danio included $30,000 of interest from municipal bonds in the $550,000. There are no other book-tax differences. What is the effective tax rate for Danio Inc.?

28% 156,000/550,000

A compnay may carry back a tax loss for _____ years and carry forward a tax loss for _____ years

2;20

Kravitz Corporation has income before taxes of $900,000 and a tax rate of 25%. Included in the income are $70,000 in municipal bond interest and $10,000 in fines and penalties. There are no other book-tax differences. What is the net amount of Kravitz's book-tax difference?

Book income that is $60,000 greater than taxable income book: 900,000 tax: 900,000 - 70,000 + 10,000 = 840,000

Inferno Inc. is embroiled in a lawsuit. In 2018, they recognize that a loss of $65,000 is probable. Given a tax rate of 40%, how will this be treated in the accounting records?

Deferred tax ASSET of $26,000 B/c overpayment of tax "better later" 65,000*40%=26,000

When a compnay depreciates a fixed asset at a faster rate for tax purposes than book purposes, this created a

Deferred tax liability

Greene Co. has book income of $425,000, and a tax rate of 30%. Assuming there are no book-tax differences, what will the JE be to record the income tax expense?

Income tax expense 127,500 Income tax payable 127,500 425,000*30%=127,500

Piper Inc. reported a net deferred tax asset balance of $166,650 resulting from an estimated warranty expense accrual for book purposes. The total book-tax difference related to the bases of the estimated warranty liability is $505,000. The enacted statutory tax rate related to this balance changed from 33% to 28% effective immediately. What JE will Piper need to make to adjust for this change in tax rates?

Income tax expense 25,250 Deferred Tax asset 25,250 505,000*5%=$25,250

All of the following are examples of facts that may create temporary book-tax differences: Contingent liabilities depreciation product warranty costs

NOT: payment of premiums for life insurance

Olympics Inc. recorded a dividends received deduction on their tax return this year. What​ (if any)​ book-tax difference will​ result?

Permanant difference; book income greater than taxable income.

_____ Differences between book income and taxable income result in an effective tax rate that differs from the statutory tax rate.

Permanenet

Dante Inc. reported fines and penalties on their income statement this year. What (if any) book-tax difference will result?

Permanent difference; book income less than taxable income

When a company pays taxes that were previously recorded as a deferred tax liability, the temporary difference ________

Reverses

In which of the following instances would a company most likely choose the carryforward option for a net operating loss?

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

If a company chooses the carryback a net operating loss (NOL) but is not able to fully offset the loss, they will,

forgo the carryback option and carryforward the entire NOL AND carry forward the remaining balance.

Which of the following statements best describes the effective tax rate?

it can be calculated by dividing income tax expense by book income before taxes