ACCT 3021 Chapter 19 Practice
$241,500 ($690,000 X 35% (enacted tax rate expected to apply), or $241,500. The tax rate of 30% in 2017 should not be used.)
The temporary difference will reverse evenly over the next two years at an enacted tax rate of 35%. The enacted tax rate for 2017 is 30%. What amount should Grey report in its 2017 income statement as the deferred portion of the provision for income taxes? A. $119,000 B. $122,500 C. $241,500 D. $207,000
$280,000 ($1,000,000 × .28 = $280,000.)
The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2013 is 28%. What amount should be reported in its 2013 income statement as the current portion of its provision for income taxes? a. $280,000 b. $400,000 c. $392,000 d. $560,000
a larger amount of depreciation expense shown on the income statement than on the tax return in the last year of the asset's useful life. (Depreciation expense under an accelerated depreciation method will be larger in the early years of an asset's life and smaller in the later years. When compared to depreciation expense calculated under the straight-line method, the expense calculated under the accelerated method will be greater in the early years and less in the later years of an asset's useful life.)
The use of accelerated depreciation for tax purposes and straight-line depreciation for accounting purposes results in: A. a larger amount of depreciation expense shown on the tax return than on the income statement over the asset's useful life. B. the asset being fully depreciated for tax purposes in half the time it takes to become fully depreciated for accounting purposes. C. a larger amount of depreciation expense shown on the income statement than on the tax return in the last year of the asset's useful life. D. a loss on the sale of the asset in question if it is sold for its book value before its useful life expires.
I only.
Uncertain tax positions I. Are positions for which the tax authorities may disallow a deduction in whole or in part. II. Include instances in which the tax law is clear and in which the company believes an audit is likely. III. Give rise to tax expense by increasing payables or increasing a deferred tax liability. a. I, II, and III. b. I and III only. c. II only. d. I only.
as either net noncurrent deferred tax assets or noncurrent deferred tax liabilities.
Under the asset-liability method, deferred taxes should A. be presented on the balance sheet as reductions of the related asset or liability accounts. B. in two amounts: one for the net debit amount and one for the net credit amount. C. as either net noncurrent deferred tax assets or noncurrent deferred tax liabilities. D. as one net debit or credit amount.
C (look at study guide)
What amount of income tax expense should Annette Company report at the end of 2020? A. $153,400 B. $107,800 C. $ 92,600 D. $ 73,400
$50,000 debit ($125,000 × .40 = $50,000 debit.)
What amount should be reported in its 2013 income statement as the deferred portion of income tax expense? a. $50,000 debit b. $90,000 debit c. $50,000 credit d. $70,000 credit
reported as an adjustment to tax expense in the period of change. (When a change in the tax rate is enacted into law, its effect on deferred income tax should be recorded immediately. The effects are reported as an adjustment to tax expense in the period of the change.)
When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be a. handled retroactively in accordance with the guidance related to changes in accounting principles. b. considered, but it should only be recorded in the accounts if it reduces a deferred tax liability or increases a deferred tax asset. c. reported as an adjustment to tax expense in the period of change. d. applied to all temporary or permanent differences that arise prior to the date of the enactment of the tax rate change, but not subsequent to the date of the change.
Product warranty liabilities. (Product warranty liabilities are temporary differences normally classified as expenses or losses that are deductible after they are recognized in financial income. (A) Advance rental receipts are temporary differences that are normally classified as revenues or gains that are taxable before they are recognized in financial income. (C) Depreciable property is a temporary difference that is normally classified as expenses or losses that are deductible before they are recognized in financial income. (D) Fines and expenses resulting from a violation of law are permanent differences that are normally recognized for financial reporting purposes but not for tax purposes.)
Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income? a. Advance rental receipts. b. Product warranty liabilities. c. Depreciable property. d. Fines and expenses resulting from a violation of law.
Product warranty liabilities. (Product warranty liabilities are temporary differences normally classified as expenses or losses that are deductible after they are recognized in financial income. (A) Advance rental receipts are temporary differences that are normally classified as revenues or gains that are taxable before they are recognized in financial income. (C) Depreciable property is a temporary difference that is normally classified as expenses or losses that are deductible before they are recognized in financial income. (D) Fines and expenses resulting from a violation of law are permanent differences that are normally recognized for financial reporting purposes but not for tax purposes.)
Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income? A. Advance rental receipts. B. Product warranty liabilities. C. Depreciable property. D. Fines and expenses resulting from a violation of law.
Expenses or losses that are tax deductible before they are recognized in financial income. (Expenses or losses that are tax deductible before they are recognized in financial income would result in future taxable amounts. Alternatives A and B are temporary differences which result in future deductible amounts. Alternative C is a permanent difference that does not result in either future taxable or deductible amounts.)
Which of the following differences would result in future taxable amounts? a. Expenses or losses that are tax deductible after they are recognized in financial income. b. Revenues or gains that are taxable before they are recognized in financial income. c. Revenues or gains that are recognized in financial income but are never included in taxable income. d. Expenses or losses that are tax deductible before they are recognized in financial income.
The deduction for dividends received from U.S. corporations. (The deduction for dividends received from U.S. corporations is a permanent difference that is recognized for tax purposes but not for financial reporting purposes. (B) Interest received on state and municipal bonds and (C) premiums paid for life insurance carried by the company on key officers are recognized for financial reporting purposes but not for tax purposes. (D) A litigation accrual is a temporary difference that is classified as an expense or loss that is deductible after it is recognized in financial income.)
Which of the following is a permanent difference that is recognized for tax purposes but not for financial reporting purposes? A. The deduction for dividends received from U.S. corporations. B. Interest received on state and municipal bonds. C. Premiums paid for life insurance carried by the company on key officers. D. A litigation accrual.
An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes. (An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income. (A) Subscriptions received in advance and (B) a prepaid royalty received in advance are temporary differences classified as revenues or gains that are taxable before they are recognized in financial income. (D) Interest received on a municipal obligation is a permanent difference that is recognized for financial reporting purposes but not for tax purposes.)
Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income? a. Subscriptions received in advance. b. Prepaid royalty received in advance. c. An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes. d. Interest received on a municipal obligation.
Stock-based compensation expense.
Which of the following is not considered a permanent difference? a. Interest received on municipal bonds. b. Fines resulting from violating the law. c. Premiums paid for life insurance on a company's CEO when the company is the beneficiary. d. Stock-based compensation expense.
I and II only.
Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates? I. Accrual for product warranty liability. II. Subscriptions received in advance. III. Prepaid insurance expense. a. I and II only. b. II only. c. III only. d. I and III only.
All of these will result in a temporary difference.
Which of the following will not result in a temporary difference? a. Product warranty liabilities b. Advance rental receipts c. Installment sales d. All of these will result in a temporary difference.
it is more likely than not that the tax position will be sustained upon audit.
With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when a. it is probable and can be reasonably estimated. b. there is at least a 51% probability that the uncertain tax position will be approved by the taxing authorities. c. it is more likely than not that the tax position will be sustained upon audit. d. Any of the above exist.
Deferred Income Taxes
(Answer=Deferred Income Taxes)
B
A company records an unrealized loss on short-term securities. This would result in what type of difference and in what type of deferred income tax?
D
A company uses the equity method to account for an investment. This would result in what type of difference and in what type of deferred income tax?
a net noncurrent amount. (Companies should classify deferred tax accounts as a net noncurrent amount on the balance sheet)
A deferred tax account is classified on the balance sheet as: A. either a current or a noncurrent liability. B. a net current amount. C. a net noncurrent amount. D. it should never appear on the balance sheet.
increase in taxes saved in future years as a result of deductible temporary differences.
A deferred tax asset represents the: A. increase in taxes payable in future years as a result of deductible temporary differences. B. decrease in taxes payable in previous years as a result of cumulative temporary differences. C. increase in taxes saved in future years as a result of deductible temporary differences. D. decrease in taxes saved in future years as a result of deductible temporary differences.
based on the classification of the related asset or liability for financial reporting purposes.
A deferred tax liability is classified on the balance sheet as either a current or a noncurrent liability. The current amount of a deferred tax liability should generally be a. the net deferred tax consequences of temporary differences that will result in net taxable amounts during the next year. b. totally eliminated from the financial statements if the amount is related to a noncurrent asset. c. based on the classification of the related asset or liability for financial reporting purposes. d. the total of all deferred tax consequences that are not expected to reverse in the operating period or one year, whichever is greater.
increase in taxes payable in future years as a result of taxable temporary differences.
A deferred tax liability represents the: A. increase in taxes saved in future years as a result of deductible temporary differences. B. increase in taxes payable in future years as a result of taxable temporary differences. C. decrease in taxes payable in future years as a result of taxable temporary differences. D. decrease in taxes saved in future years as a result of deductible temporary differences.
temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse. (The only correct alternative regarding temporary differences and permanent differences is alternative D. Temporary and permanent differences occur with the same general frequency. Also, permanent differences do not change in status with the passage of time.)
A major distinction between temporary and permanent differences is a. permanent differences are not representative of acceptable accounting practice. b. temporary differences occur frequently, whereas permanent differences occur only once. c. once an item is determined to be a temporary difference, it maintains that status; however, a permanent difference can change in status with the passage of time. d. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.
A (A company can only carry the net operating loss forward indefinitely. In the past (as described in appendix 19B) the correct answer would have been (B), a company could carry the net operating loss back two years and receive refunds for income taxes paid in those years. The loss was then applied to the earliest year first and then subsequently to the second year. Any loss remaining after the two-year carryback could have been carried forward up to 20 years to offset future taxable income. A company was also able elect the loss carryforward only, offsetting future taxable income up to 20 years.)
A net operating loss occurs for tax purposes in a year when tax-deductible expenses exceed taxable revenues. Under certain circumstances the federal tax laws permit taxpayers to use the losses of one year to offset the profits of other years. For what period of time can net operating losses be offset against prior or future years' profits?
A
A temporary difference arises when a revenue item is reported for tax purposes in a period
reduce a deferred tax asset.
A valuation account is used to: A. increase a deferred tax asset. B. increase a deferred tax liability. C. reduce a deferred tax asset. D. reduce a deferred tax liability.
C (According to GAAP a deferred tax liability meets the definition of a liability. Thus, (a) it results from a past transaction, (b) it is a present obligation, and (c) it represents a future sacrifice)
According to GAAP, a deferred tax liability:
a contra-asset account.
Accounting for income taxes can result in the reporting of deferred taxes as any of the following except a. a current or long-term asset. b. a current or long-term liability. c. a contra-asset account. d. All of these are acceptable methods of reporting deferred taxes.
measure the total deferred tax asset for deductible temporary differences and operating loss carrybacks.
All of the following are procedures for the computation of deferred income taxes except to a. identify the types and amounts of existing temporary differences. b. measure the total deferred tax liability for taxable temporary differences. c. measure the total deferred tax asset for deductible temporary differences and operating loss carrybacks. d. All of these are procedures in computing deferred income taxes.
all of these.
An example of a permanent difference is a. proceeds from life insurance on officers. b. interest expense on money borrowed to invest in municipal bonds. c. insurance expense for a life insurance policy on officers. d. all of these.
items II and III only
Assuming a 40% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet? I. A revenue is deferred for financial reporting purposes but not for tax purposes. II. A revenue is deferred for tax purposes but not for financial reporting purposes. III. An expense is deferred for financial reporting purposes but not for tax purposes. IV. An expense is deferred for tax purposes but not for financial reporting purposes. a. item II only b. items I and II only c. items II and III only d. items I and IV only
$ (825,000) (($150,000 × 30%) = $45,000; $1,200,000 × 40% = $480,000; ($1,350,000 - $45,000 - $480,000) = $825,000.)
Assuming that Wilcox elects to use the carryback provision, what income (loss) is reported in 2013? (Assume that any deferred tax asset recognized is more likely than not to be realized.) a. $(1,350,000) b. $ -0- c. $(1,305,000) d. $ (825,000)
$(810,000) (($1,350,000 × 40%) = $540,000; $1,350,000 - $540,000 = $810,000.)
Assuming that Wilcox elects to use the carryforward provision and not the carryback provision, what income (loss) is reported in 2013? a. $(1,350,000) b. $(810,000) c. $ -0- d. $(1,305,000)
Unruh will record a decrease in a deferred tax liability in 2013.
At the December 31, 2012 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2013, a future taxable amount will occur and a. pretax financial income will exceed taxable income in 2013. b. Unruh will record a decrease in a deferred tax liability in 2013. c. total income tax expense for 2011 will exceed current tax expense for 2013. d. Unruh will record an increase in a deferred tax asset in 2013.
$30,400 (($52,000 + $24,000) ´ .40 = $30,400.)
At the beginning of 2012; Elephant, Inc. had a deferred tax asset of $8,000 and a deferred tax liability of $12,000. Pre-tax accounting income for 2012 was $600,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: The ending balance in Elephant, Inc's deferred tax liability at December 31, 2012 is a. $18,400 b. $30,400 c. $20,800 d. $62,400
$504,000 ($600,000 - $48,000 + $104,000 - $76,000 - $52,000 - $24,000 = $504,000.)
At the beginning of 2012; Elephant, Inc. had a deferred tax asset of $8,000 and a deferred tax liability of $12,000. Pre-tax accounting income for 2012 was $600,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: What is Elephant, Inc.'s taxable income for 2012? a. $600,000 b. $504,000 c. $696,000 d. $904,000
A debit of $33,600 (($104,000 ´ .40) - $8,000 = $33,600.)
At the beginning of 2012; Elephant, Inc. had a deferred tax asset of $8,000 and a deferred tax liability of $12,000. Pre-tax accounting income for 2012 was $600,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: Which of the following is required to adjust Elephant, Inc.'s deferred tax asset to its correct balance at December 31, 2012? a. A debit of $41,600 b. A credit of $30,400 c. A debit of $30,400 d. A debit of $33,600
C ($900,000 - [($900,000 - $75,000) ÷ 5)] = $735,000; $900,000 - (900,000 × 1/5 × 2) = $540,000.)
At the beginning of 2013, Pitman Co. purchased an asset for $900,000 with an estimated useful life of 5 years and an estimated salvage value of $75,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2013 and all future years. At the end of 2013, what is the book basis and the tax basis of the asset?
B (($735,000 - $540,000) × .40 = $78,000.)
At the beginning of 2013, Pitman Co. purchased an asset for $900,000 with an estimated useful life of 5 years and an estimated salvage value of $75,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2013 and all future years. At the end of 2013, which of the following deferred tax accounts and balances is reported on Pitman's balance sheet?
the classification of the related asset or liability.
Deferred tax amounts that are related to specific assets or liabilities should be classified as current or noncurrent based on a. their expected reversal dates. b. their debit or credit balance. c. the length of time the deferred tax amounts will generate future tax deferral benefits. d. the classification of the related asset or liability.
increase in a deferred tax liability.
Deferred tax expense is the: A. decrease in a deferred tax liability. B. increase in a deferred tax liability. C. amount of income taxes payable for the period. D. increase in a deferred tax asset.
in two amounts: one for the net current amount and one for the net noncurrent amount.
Deferred taxes should be presented on the balance sheet a. as one net debit or credit amount. b. in two amounts: one for the net current amount and one for the net noncurrent amount. c. in two amounts: one for the net debit amount and one for the net credit amount. d. as reductions of the related asset or liability accounts.
$2,100,000 ((30% × Temporary Difference) = $90,000; Temporary Difference = ($90,000 ÷ 30%) = $300,000;$1,800,000 + $300,000 = $2,100,000.)
Eckert uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $1,800,000. No other differences existed between book income and taxable income except for the amount of depreciation. Assuming a 30% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year? a. $1,500,000 b. $1,125,000 c. $1,800,000 d. $2,100,000
$3,750,000. ($450,000 ÷ 30% = $1,500,000 temporary difference; $1,500,000 ÷ 40% = $3,750,000.)
Ewing Company sells household furniture. Customers who purchase furniture on the installment basis make payments in equal monthly installments over a two-year period, with no down payment required. Ewing's gross profit on installment sales equals 40% of the selling price of the furniture. For financial accounting purposes, sales revenue is recognized at the time the sale is made. For income tax purposes, however, the installment method is used. There are no other book and income tax accounting differences, and Ewing's income tax rate is 30%. If Ewing's December 31, 2013, balance sheet includes a deferred tax liability of $450,000 arising from the difference between book and tax treatment of the installment sales, it should also include installment accounts receivable of a. $3,750,000. b. $1,500,000. c. $1,125,000. d. $450,000.
$0 (Temporary differences are differences which exist between taxable income and accounting income. These differences originate in one period and reverse in one or more subsequent periods. Temporary differences are used to measure deferred income taxes. However, the items noted in this question are permanent differences. Permanent differences affect either accounting income or tax income, but not both, so they do not result in deferred income taxes.)
For Kubitz Company the amount of temporary differences used to measure deferred income taxes amount to: A. $0 B. $11,000 C. $16,000 D. $27,000
D (In the journal entry, income tax expense is increased in the current period because a favorable tax benefit is not expected to be realized for a portion of the deductible temporary difference. A valuation account is simultaneously established to recognize the reduction in the carrying amount of the deferred tax asset.)
Gleim Inc. has a deductible temporary difference of $100,000 at the end of its first year of operations. Its tax rate is 40%. Income taxes payable are $90,000. Gleim properly recorded a deferred tax asset. Later, after careful review of all available evidence, it is determined that it is more likely than not that $15,000 of the deferred tax asset will not be realized. What entry should Gleim make to record the reduction in asset value?
$60,000 ($120,000 × .50 = $60,000.)
Horner Corporation has a deferred tax asset at December 31, 2013 of $120,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted tax rates are as follows: 40% for 2010-2012; 35% for 2013; and 30% for 2014 and thereafter. Assuming that management expects that only 50% of the related benefits will actually be realized, a valuation account should be established in the amount of: a. $60,000 b. $24,000 c. $21,000 d. $18,000
$540,000 asset. (($1,800,000 × 30%) = $540,000.)
In 2012, Krause Company accrued, for financial statement reporting, estimated losses on disposal of unused plant facilities of $1,800,000. The facilities were sold in March 2013 and a $1,800,000 loss was recognized for tax purposes. Also in 2012, Krause paid $100,000 in premiums for a two-year life insurance policy in which the company was the beneficiary. Assuming that the enacted tax rate is 30% in both 2012 and 2013, and that Krause paid $780,000 in income taxes in 2012, the amount reported as net deferred income taxes on Krause's balance sheet at December 31, 2012, should be a a. $510,000 asset. b. $270,000 asset. c. $270,000 liability. d. $540,000 asset.
$17,500 (Revenues - Expenses = Taxable Income; Taxable Income × Tax Rate = Income Taxes Payable; $150,000 - $100,000 = $50,000 × 35% = $17,500)
In 2020, Delaney Company had revenues of $180,000 for book purposes and $150,000 for tax purposes. Delaney also had expenses of $100,000 for both book and tax purposes. If Delaney has a 35% tax rate, what are Delaney's income taxes payable for 2020? A. $10,500 B. $17,500 C. $28,000 D. $35,000
$295,000 (($700,000 × .35) + ($125,000 × .40) = $295,000.)
In Mitchell's 2013 income statement, what amount should be reported for total income tax expense? a. $325,000 b. $315,000 c. $295,000 d. $245,000
pretax income.
Income tax expense is based on: A. operating income. B. pretax income. C. income from continuing operations. D. taxable income.
$106,000 ($120,000 - ($35,000 × .40) = $106,000.)
Lyons Company deducts insurance expense of $105,000 for tax purposes in 2012, but the expense is not yet recognized for accounting purposes. In 2013, 2014, and 2015, no insurance expense will be deducted for tax purposes, but $35,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $90,000 at the end of 2012. There were no deferred taxes at the beginning of 2012. Assuming that income tax payable for 2013 is $120,000, the income tax expense for 2013 would be what amount? a. $162,000 b. $134,000 c. $120,000 d. $106,000
$132,000 ($90,000 + ($105,000 × .40) = $132,000.)
Lyons Company deducts insurance expense of $105,000 for tax purposes in 2012, but the expense is not yet recognized for accounting purposes. In 2013, 2014, and 2015, no insurance expense will be deducted for tax purposes, but $35,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $90,000 at the end of 2012. There were no deferred taxes at the beginning of 2012. What is the amount of income tax expense for 2012? a. $132,000 b. $126,000 c. $105,000 d. $90,000
$42,000 ($105,000 × .40 = $42,000.)
Lyons Company deducts insurance expense of $105,000 for tax purposes in 2012, but the expense is not yet recognized for accounting purposes. In 2013, 2014, and 2015, no insurance expense will be deducted for tax purposes, but $35,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $90,000 at the end of 2012. There were no deferred taxes at the beginning of 2012. What is the amount of the deferred tax liability at the end of 2012? a. $42,000 b. $36,000 c. $15,000 d. $0
A
Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in
all of these.
Major reasons for disclosure of deferred income tax information is (are) a. better assessment of quality of earnings. b. better predictions of future cash flows. c. that it may be helpful in setting government policy. d. all of these.
$275,000. (Income - Tax Expense = Net Income; $500,000 - $225,000 = $275,000. The tax expense is $225,000, which is reported on the income statement. Due to the temporary difference the company's tax liability is only $90,000 ($200,000 × .45). Thus, Deferred Income Taxes would be credited for $135,000 ($225,000 - $90,000) due to the temporary difference.)
Maureen Corporation reports income before taxes of $500,000 in its income statement, but because of timing differences taxable income is only $200,000. If the tax rate is 45%, what amount of net income should the corporation report? A. $337,500. B. $275,000. C. $225,000. D. $ 90,000.
$34,000. (The $1,600 difference between tax expense and tax liability is caused by the warranty expense. Because the tax liability is greater by $1,600, the amount of warranty expense charged on the tax return was smaller than the $38,000 charged against accounting income. We also know that 40% of the difference between warranty expense and the warranty payments actually made is $1,600. Thus, the total difference is $4,000 ($1,600 ÷ .40). The amount actually paid this year on the Company's warranty was $34,000 ($38,000 - $4,000).)
Milar estimates its annual warranty expense as a percentage of sales. The amount charged to warranty expense on its books was $38,000. No other differences existed between accounting and taxable income. Assuming a 40% income tax rate, what amount was actually paid this year on the Company's warranty? A. $34,000. B. $38,000. C. $40,000. D. $42,000.
credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000.
On December 31, 2017, Winston Inc. has determined 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 Payable of $240,000. B. debit to Income Tax Expense for $360,000. C. credit to Income Tax Expense for $360,000. D. credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000.
the establishment of a deferred tax asset.
Recognition of tax benefits in the loss year due to a loss carryforward requires a. the establishment of a deferred tax liability. b. the establishment of a deferred tax asset. c. the establishment of an income tax refund receivable. d. only a note to the financial statements.
consider all positive and negative information in determining the need for a valuation allowance.
Recognizing a valuation allowance for a deferred tax asset requires that a company a. consider all positive and negative information in determining the need for a valuation allowance. b. consider only the positive information in determining the need for a valuation allowance. c. take an aggressive approach in its tax planning. d. pass a recognition threshold, after assuming that it will be audited by taxing authorities.
$20,850 (At the end of 2021 (the second year) the difference between the book value and the tax basis of the unexpired insurance is $14,000 ($21,000 - $7,000). This difference is multiplied by the tax rate to arrive at the deferred tax liability to be reported at the end of 2021. 6,300-9,450= (3,150); (3,150)+24,000= 20,850)
Sandy Company deducts insurance expense of $21,000 for tax purposes in 2020, but the expense is not yet recognized for accounting purposes. In 2021, 2022 and 2023 taxable income will be higher than financial income because no insurance expense will be deducted for tax purposes, but $7,000 of insurance expense will be reported for accounting purposes in each of these years. Sandy Company has a tax rate of 45% and income taxes payable of $18,000 at the end of 2020. There were no deferred taxes at the beginning of 2020. Assuming that income taxes payable for 2021 is $24,000, the income tax expense for 2021 would be what amount? A. $20,850 B. $24,000 C. $27,150 D. $33,450
$9,450 (21,000-0=21,000; 21,000×45%=$9,450)
Sandy Company deducts insurance expense of $21,000 for tax purposes in 2020, but the expense is not yet recognized for accounting purposes. In 2021, 2022 and 2023 taxable income will be higher than financial income because no insurance expense will be deducted for tax purposes, but $7,000 of insurance expense will be reported for accounting purposes in each of these years. Sandy Company has a tax rate of 45% and income taxes payable of $18,000 at the end of 2020. There were no deferred taxes at the beginning of 2020. What is the amount of the deferred tax liability at the end of 2020? A. $0 B. $3,000 C. $8,100 D. $9,450
B (Taxes due and payable are credited to Income Taxes Payable; the increase in deferred taxes is credited to Deferred Tax Liability; and the sum of those two items is debited to Income Tax Expense.)
Sandy Company deducts insurance expense of $21,000 for tax purposes in 2020, but the expense is not yet recognized for accounting purposes. In 2021, 2022 and 2023 taxable income will be higher than financial income because no insurance expense will be deducted for tax purposes, but $7,000 of insurance expense will be reported for accounting purposes in each of these years. Sandy Company has a tax rate of 45% and income taxes payable of $18,000 at the end of 2020. There were no deferred taxes at the beginning of 2020. What journal entry should be made for the income tax expense at the end of 2020?
a fine resulting from violations of OSHA regulations. (An item that would create a permanent difference in accounting and taxable incomes would be a fine resulting from violations of OSHA regulations.)
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.
The refund claimed should be shown as a reduction of the loss in 2013.
Tanner, Inc. incurred a financial and taxable loss for 2013. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2013 financial statements? a. The reduction of the loss should be reported as a prior period adjustment. b. The refund claimed should be reported as a deferred charge and amortized over five years. c. The refund claimed should be reported as revenue in the current year. d. The refund claimed should be shown as a reduction of the loss in 2013.
the future tax rates have been enacted into law.
Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if a. it is probable that a future tax rate change will occur. b. it appears likely that a future tax rate will be greater than the current tax rate. c. the future tax rates have been enacted into law. d. it appears likely that a future tax rate will be less than the current tax rate.
require the recording of a deferred tax liability.
Taxable amounts are temporary differences that: A. require the recording of a deferred tax liability. B. require the recording of a deferred tax asset. C. increase pretax financial income in future years. D. decrease taxable income in future years.
differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination.
Taxable income of a corporation a. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination. b. differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination. c. is based on generally accepted accounting principles. d. is reported on the corporation's income statement.
C
Taxable income of a corporation differs from pretax financial income because of
$180,000. (($600,000 × 30%) = $180,000.)
The amount that Rodd should report as an income tax refund receivable in 2013, assuming that it uses the carryback provisions and that the tax rate is 40% in 2013, is a. $180,000. b. $210,000. c. $240,000. d. $270,000.
increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.
The deferred tax expense is the a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability. b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset. c. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability. d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.
$262,500 deferred tax asset (($2,000,000 - $1,250,000) × 35% = $262,500.)
The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2013. What should Cross record as a net deferred tax asset or liability for the year ended December 31, 2012, assuming that the enacted tax rates in effect are 40% in 2012 and 35% in 2013? a. $300,000 deferred tax liability b. $262,500 deferred tax asset c. $300,000 deferred tax asset d. $262,500 deferred tax liability
$90,000. (($300,000 × 30%) = $90,000.)
The estimated litigation expense of $1,200,000 will be deductible in 2013 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $600,000 in each of the next three years. The income tax rate is 30% for all years. Income tax payable is a. $0. b. $90,000. c. $180,000. d. $270,000.
$360,000 current. (($1,200,000 × 30%) = $360,000.)
The estimated litigation expense of $1,200,000 will be deductible in 2013 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $600,000 in each of the next three years. The income tax rate is 30% for all years. The deferred tax asset to be recognized is a. $90,000 current. b. $180,000 current. c. $270,000 current. d. $360,000 current.
$0 $540,000 (($1,800,000 × 30%) = $540,000.)
The estimated litigation expense of $1,200,000 will be deductible in 2013 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $600,000 in each of the next three years. The income tax rate is 30% for all years. The deferred tax liability to be recognized is Current Noncurrent a. $180,000 $360,000 b. $180,000 $270,000 c. $0 $540,000 d. $0 $450,000
$450,000 noncurrent. (($1,500,000 × 30%) = $450,000.)
The estimated litigation expense of $1,500,000 will be deductible in 2014 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $600,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $600,000 current and $600,000 noncurrent. The income tax rate is 30% for all years. The deferred tax asset to be recognized is a. $0. b. $90,000 current. c. $450,000 current. d. $450,000 noncurrent.
$180,000. (($600,000 × 30%) = $180,000.)
The estimated litigation expense of $1,500,000 will be deductible in 2014 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $600,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $600,000 current and $600,000 noncurrent. The income tax rate is 30% for all years. The deferred tax liability—current to be recognized is a. $90,000. b. $270,000. c. $180,000. d. $360,000.
$180,000. (Income tax payable = ($900,000 × 30%) = $270,000. Change in deferred tax liability = ($1,200,000 × 30%) = $360,000. Change in deferred tax asset = ($1,500,000 × 30%) = $450,000. $270,000 + $360,000 - $450,000 = $180,000.)
The estimated litigation expense of $1,500,000 will be deductible in 2014 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $600,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $600,000 current and $600,000 noncurrent. The income tax rate is 30% for all years. The income tax expense is a. $180,000. b. $270,000. c. $300,000. d. $600,000.
$3,720,000. ($3,200,000 + ($1,800,000 - $1,280,000) = $3,720,000.)
The tax rate enacted for 2013 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2013 is $3,200,000 and there are no permanent differences. Ferguson's pretax financial income for 2013 is a. $5,000,000. b. $3,720,000. c. $2,680,000. d. $1,400,000.
