Exam 2 - Intermediate Financial 2

Garrett has a deferred tax asset of $20,000. At the end of the year, Garrett has determined that it is more likely than not that $4,000 of the deferred tax asset will not be realized. The deferred tax asset should be reported in the balance sheet at Multiple choice question. $4,000. $20,000. $16,000. $24,000.

$16,000.

Persimmon Corp. is a property and casualty insurance company in its fourth year of operation. Persimmon had taxable income of $20,000 in year 1, $30,000 in year 2, and $50,000 in year 3. In year 4, Persimmon incurred a $400,000 net operating loss. Persimmon is allowed to carry its NOLs back two years. Assuming the tax rate is 40% and Persimmon's pretax accounting loss was $400,000, the net loss for financial reporting purposes in year 4 is Multiple choice question. $320,000. $160,000. $400,000. $240,000.

$240,000.

Persimmon Corp. is a property and casualty insurance company in its fourth year of operation. Persimmon had taxable income of $20,000 in year 1, $30,000 in year 2, and $50,000 in year 3. In year 4, Persimmon incurred a $400,000 net operating loss. Persimmon is allowed to carry its NOLs back two years. Assuming the tax rate is 40% and Persimmon's pretax accounting loss was $400,000, the net loss for financial reporting purposes in year 4 is Multiple choice question. $320,000. $160,000. $240,000. $400,000.

$240,000.

Olaf Corp. is in its third year of operations. Olaf had taxable income (loss) as follows: Year 1 $10,000 Year 2 $(50,000) Year 3 $20,000 The NOL carryforward at the end of Year 3 is Multiple choice question. $30,000 $34,000 $20,000 $24,000

$34,000

Peachtree Corp. is a merchandiser in its fourth year of operations. Peachtree had taxable income of $20,000 in year 1, $30,000 in year 2, and $50,000 in year 3. In year 4, Peachtree incurred a $400,000 net operating loss for tax purposes. The NOL carryforward is Multiple choice question. $300,000. $400,000. $480,000. $320,000.

$400,000.

In year 1, Ling estimates warranty expense of $60,000 for financial reporting purposes. The amount of warranties deducted on the tax return was $40,000. The difference will be deducted on the tax return in the following year. The income tax rate is 40%. What is the balance in the deferred tax asset account at the end of year 1? $16,000 $8,000 $24,000 $20,000

$8,000

In year 1, Ling estimates warranty expense of $60,000 for financial reporting purposes. The amount of warranties deducted on the tax return was $40,000. The difference will be deducted on the tax return in the following year. The income tax rate is 40%. What is the balance in the deferred tax asset account at the end of year 1? $8,000 $16,000 $24,000 $20,000

$8,000

In year 1, Ling estimates warranty expense of $60,000 for financial reporting purposes. The amount of warranties deducted on the tax return was $40,000. The difference will be deducted on the tax return in the following year. The income tax rate is 40%. What is the balance in the deferred tax asset account at the end of year 1? $8,000 $24,000 $20,000 $16,000

$8,000

Smith Company leased equipment from FirstLease Corp. The cost of the equipment to FirstLease was $500,000. The present value of the expected residual value is $40,000. The lease includes six annual payments beginning on the first day of the lease. If the six lease payments are of an equal amount, what payment amount would provide FirstLease Corp with a return of 10%? $76,667 $105,619 $96,018 $104,367 $100,000

$96,018

American Food Services, Inc. leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2021. The lease agreement for the $5.8 million (fair value and present value of the lease payments) machine specified four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. Barton and Barton's implicit interest rate was 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2021.2. Prepare an amortization schedule for the four-year term of the lease.3. & 4. Prepare the appropriate entries related to the lease on December 31, 2021 and 2023.

1January 01, 2021Right-of-use asset5,800,000selected answer correctnot attemptedLease payableselected answer correctnot attempted5,800,000selected answer correct

Munchin Manufacturing Company leases an asset to Peter Inc in a sales-type lease. The present value of the lease payments is $400,000 and the cost of the asset is $330,000. At the beginning of the five-year lease term, Munchin should recognize a profit of: 70,000 $0 $330,000 $400,000

70,000

A reasonable conclusion is that Blank______ of the fair value of the asset amounts to "substantially all" of the fair value. Multiple choice question. 90% or more 90% or less 75% or more 75% or less

90% or more

Which of the following statements are true with respect to permanent differences? Lead to the creation of deferred tax assets and liabilities. Affect the effective tax rate. Differences between taxable income and pretax accounting income. Caused by transactions that will never affect taxable income. Recognized only on the balance sheet.

Affect the effective tax rate. Differences between taxable income and pretax accounting income. Caused by transactions that will never affect taxable income.

Which of the following is interperiod tax allocation? Multiple choice question. Allocating income taxes after the reporting period ends. Allocating income taxes between two or more reporting periods. Allocating income taxes within a particular reporting period.

Allocating income taxes between two or more reporting periods.

Which of the following will create a deferred tax liability? (Select all that apply.) Multiple select question. Revenue included on the tax return but not on the income statement. An amount that is included as an expense on the income statement but is not on the tax return. An amount that is deducted on the tax return but not included as an expense on the income statement. Revenue included on the income statement but not on the tax return.

An amount that is deducted on the tax return but not included as an expense on the income statement. Revenue included on the income statement but not on the tax return.

The tax rate used to measure deferred tax assets and liabilities is the tax rate in the year(s) the temporary difference reverses. (Enter only one word.)

Blank 1: enacted

A taxable amount in a future year creates a deferred tax

Blank 1: liability

Lease payments are often than installment payments.

Blank 1: lower, less, or smaller

If a lease modification substantially lengthens the amount of time the lessee has the right to use an asset, it is possible that the lessee might need to switch its lease classification from to .

Blank 1: operating or operating lease Blank 2: finance, sales-type, finance/sales-type, finance lease, or finance/sales type lease

A deferred tax liability occurs when there is a future amount. (Enter only one word.)

Blank 1: taxable or taxed

If it is more likely than not that all or a portion of a deferred tax asset will not be realized, then the amount of the deferred tax asset reported on the balance sheet should be reduced by a

Blank 1: valuation Blank 2: allowance

Which of the following is true regarding how a lessor reports cash flows from a sales-type lease? Cash receipts are reported as cash inflows from financing activities. The portion that represents interest revenue is reported as operating, and the remainder is reported as financing. Cash receipts are reported as cash inflows from investing activities. Cash receipts are reported as cash inflows from operating activities.

Cash receipts are reported as cash inflows from operating activities.

Rosa's pretax accounting income in Year 2 is $3,000. Rosa deducts depreciation for tax purposes in excess of accounting depreciation of $300 in Year 1 and $700 in Year 2. It is expected the depreciation deduction will reverse by $500 in Year 3 and $500 in Year 4. The income tax rate is 40%. Which of the following entries is included in the journal entry to record deferred taxes for Year 2? Credit deferred tax liability $500. Debit deferred tax expense $400. Debit income tax expense $400. Credit deferred tax liability $280.

Credit deferred tax liability $280.

Parson's pretax accounting income in Year 2 is $100,000. Parson deducts depreciation for tax purposes in excess of accounting depreciation of $5,000 in Year 1 and $10,000 in Year 2. It is expected the depreciation deduction will reverse $7,000 in Year 3 and $8,000 in Year 4. The income tax rate is 40%. Which of the following entries is included in the journal entry to record deferred taxes at the end of Year 2? Credit deferred tax liability $4,000. Debit deferred tax liability $6,000. Credit deferred tax liability $2,000. Debit tax expense $2,000.

Credit deferred tax liability $4,000.

Lease Corp leases equipment to Samuel Company in a sales-type lease. The present value of the lease payments is $250,000. The lease includes an unguaranteed residual value with a present value of $50,000. The rate implicit in the contract is 6% and the lease term is five years. Which of the following are included in the journal entry for Lease Corp to record this lease? Multiple choice question. Debit right of use asset $300,000 Credit equipment $300,000 Debit lease receivable $250,000 Credit residual asset $50,000

Credit equipment $300,000

Regina Corp. is in its first year of operations and has a net loss of $50,000. Regina expects to be profitable within the next three years. The enacted income tax rate is 21%. Which of the following entries is included in the journal entry to record the NOL carryforward? Credit income tax benefit $50,000. Debit deferred tax asset $10,500. Credit deferred tax liability $39,500. Debit income tax expense $10,500.

Debit deferred tax asset $10,500.

Regina Corp. is in its first year of operations and has a net loss of $50,000. Regina expects to be profitable within the next three years. The enacted income tax rate is 21%. Which of the following entries is included in the journal entry to record the NOL carryforward? Credit income tax benefit $50,000. Debit deferred tax asset $10,500. Debit income tax expense $10,500. Credit deferred tax liability $39,500.

Debit deferred tax asset $10,500.

Brindle Corp. is in its first year of operations and has a net operating loss for tax purposes of $100,000. Brindle expects to be profitable within the next 2 years. The enacted income tax rate is 40%. Which of the following entries are included to record the NOL carryforward? Credit deferred tax liability $40,000. Debit deferred tax asset $40,000. Credit income tax benefit $40,000. Credit taxes payable $40,000. Debit tax expense $40,000.

Debit deferred tax asset $40,000. Credit income tax benefit $40,000.

Which of the following describes the proper treatment of discontinued operations on the income statement. Discontinued operations are included as part of income from continuing operations. Discontinued operations are a separate line item, but tax is applied to total net income. Discontinued operations are a separate line item reported net of tax.

Discontinued operations are a separate line item reported net of tax.

On January 1, 20X1, Tucker Company leases equipment from Franz Inc. over the equipment's entire estimated useful life of five years. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The annual rental payment is $100,000; the first payment is due on January 1, 20X1. At the commencement of the lease, Franz should credit Gross profit on lease of $68,787 Equipment for $500,000 Equipment for $431,213 Lease revenue for $500,000

Equipment for $431,213

Sales-type lease with selling profit

Expensed at the beginning of the lease

Income tax expense is calculated directly.

False

True or false: The residual value of a leased asset impacts the lessee's calculation of effective interest.

False

When a bargain purchase option is present, the lessor subtracts the future value of the exercise price from the amount to be recovered to determine the amount to be recovered through rental payments.

False

When a phased-in change in tax rates is scheduled to occur, all future temporary differences are multiplied by the current tax rate to determine deferred tax liability and/or asset.

False

Fit Company leases building space from Lease Corp. Fit Company agrees to pay Lease Corp an additional amount if Lease Corp attracts a higher amount of traffic through the doors resulting in more profit for Fit Company. How are these variable lease payments treated? (Select all that apply.) Multiple select question. Fit Company records a lease payable when the agreement is made Fit Company records lease expense when the variable lease payment is paid Lease Corp records a lease receivable when the agreement is made Lease Corp records lease revenue when the variable lease payment is received

Fit Company records lease expense when the variable lease payment is paid Lease Corp records lease revenue when the variable lease payment is received

All temporary differences are categorized in which of the following ways? (Select all that apply.) Past income amounts Past taxable amounts Future deductible amounts Future taxable amounts

Future deductible amounts Future taxable amounts

Under Blank______, a lessee remeasures the variable lease payments that depend on an index or rate whenever there is a change in the cash flows resulting from a change in that index or rate; however, under Blank______ a lessee only remeasures the variable lease payments that depend on an index or rate when the lessee remeasures the ROU asset and lease liability for other reasons. US GAAP and IFRS both remeasure whenever the index or rate changes. US GAAP; IFRS IFRS; US GAAP

IFRS; US GAAP

Ludwig Corporation leases a machine to Kluge Corporation under a three-year lease agreement determined to be a finance/sales-type lease. At the inception of the lease, (Select all that apply) Multiple select question. Ludwig records a right-of-use asset. Kluge records a lease payable. Kluge records a right-of-use asset. Ludwig records a lease payable.

Kluge records a lease payable. Kluge records a right-of-use asset.

Select all that apply Fit Company leases building space from Lease Corp. Fit Company agrees to pay Lease Corp an additional amount if Lease Corp attracts a higher amount of traffic through the doors resulting in more profit for Fit Company. How are these variable lease payments treated? (Select all that apply.) Multiple select question. Lease Corp records lease revenue when the variable lease payment is received Lease Corp records a lease receivable when the agreement is made Fit Company records lease expense when the variable lease payment is paid Fit Company records a lease payable when the agreement is made

Lease Corp records lease revenue when the variable lease payment is received Fit Company records lease expense when the variable lease payment is paid

What is another name for negative taxable income? Multiple choice question. Deferred tax asset Net operating loss Loss tax expense Deferred tax liability

Net operating loss

Which of the following assets are eligible for lease accounting under ASC 842? Multiple select question. Inventory Intangibles Property Buildings

Property Buildings

Which of the following is a required disclosure related to deferred tax assets and deferred tax liabilities? Description of each asset and liability making up the total deferred taxes. The approximate tax effect of each type of temporary difference. The approximate tax effect of each type of permanent difference.

The approximate tax effect of each type of temporary difference.

Which one of the following will determine classification of a lease transaction as a finance lease? Multiple choice question. Ownership of the asset remains with the lessor at the end of the lease. The lease term is for 50% of the remaining economic life of the leased asset. The present value of the lease payments is 50% of the fair value of the leased asset. The asset is of a very specialized nature and will have no alternative use to the lessor.

The asset is of a very specialized nature and will have no alternative use to the lessor.

When the tax laws change, which rate is used to value deferred tax assets and liabilities? The average rate of the years before the timing difference reverses. The enacted rate in the year the timing difference reverses. The enacted rate in the current year. The effective rate in the current year.

The enacted rate in the year the timing difference reverses.

How does a residual value in a finance/sales-type lease affect the lessee? The residual value is added to the lease liability The residual value is added to the right-of-use asset The lessee is unaffected. The lessee lease payments are lower. The lessee lease payments are higher.

The lessee lease payments are lower.

Which of the following occur in a sale-leaseback transaction? Multiple select question. The lessee pays periodic rental payments. The lessee receives periodic rental income. The lessee receives cash from the sale of the asset. The lessor receives cash from the sale of the asset.

The lessee pays periodic rental payments. The lessee receives cash from the sale of the asset.

Who is the initial owner of the asset in a sale-leaseback transaction? Multiple choice question. The lessee. The lessor. Neither the lessee nor the lessor.

The lessee.

Which of the following are benefits of a net operating loss carryforward? (Select all that apply.) They provide an unprofitable company reason to acquire a profitable company. The net operating loss carryforward indicates increased earnings in the future. The potential tax benefit can provide cash savings for the company in the future. They make an unprofitable company an attractive target for acquisition.

The potential tax benefit can provide cash savings for the company in the future. They make an unprofitable company an attractive target for acquisition

Which of the following are criteria for classification as a finance lease? (Select all that apply.) The present value of the total lease payments is greater than substantially all of the fair value of the asset. The present value of the total lease payments is less than substantially all of the fair value of the asset. The asset will have an alternative use to the lessor at the end of the lease term. Ownership of the asset is retained by the lessor. The lease includes a purchase option the lessee is reasonably certain to exercise. Ownership of the asset transfers to the lessee.

The present value of the total lease payments is greater than substantially all of the fair value of the asset. The lease includes a purchase option the lessee is reasonably certain to exercise. Ownership of the asset transfers to the lessee.

Why should outside analysts and investors consider how effectively management has managed the company's tax exposures? Unexpected additional tax expenditures can diminish the prospective rate of return. Income taxes represent one of the largest expenditures incurred by a company. NOL carryforwards represent a potential hardship to the company.

Unexpected additional tax expenditures can diminish the prospective rate of return. Income taxes represent one of the largest expenditures incurred by a company.

A net operating loss carryforward creates additional tax expense. a temporary difference. a permanent difference. a deferred tax asset.

a deferred tax asset. reduces taxable income in future years.

Ludwig Corporation leases a machine to Kluge Corporation under a three-year lease agreement determined to be a finance/sales-type lease. At the inception of the lease, Ludwig Corporation should record a lease receivable. lease expense. a right-to-use asset. a lease payable.

a lease receivable.

For an operating lease, the lessee will report Multiple choice question. a single lease expense. separate interest expense and amortization expense on the right-of-use asset. separate interest expense and depreciation expense on the right-of-use asset.

a single lease expense.

Initial direct costs incurred by the lessee are Multiple choice question. deferred and expensed over the lease term. added to the right-of-use asset. expensed at the beginning of the lease.

added to the right-of-use asset.

Periods covered by renewal options Multiple choice question. are always included in the lease term. are not included in the lease term if a bargain purchase option is present. are only included in the lease term if a bargain purchase option is present.

are not included in the lease term if a bargain purchase option is present.

When the lessee is given the option of purchasing the leased property at a price significantly lower than its fair value, a Blank______ is present. bargain sale option bargain purchase option bargain renewal option

bargain purchase option

A net operating loss Blank______ create(s) a deferred tax asset. carryback and carryforward carryforward carryback

carryforward

A net operating loss Blank______ create(s) a deferred tax asset. carryforward carryback and carryforward carryback

carryforward

Initial direct costs include (Select all that apply) Multiple select question. leasehold improvements that extend the life of the leased asset legal fees for lease negotiations and drafting documents costs that would not have been incurred if the lease agreement did not exist costs necessary to acquire the lease costs associated with completing the lease agreement

costs that would not have been incurred if the lease agreement did not exist costs necessary to acquire the lease costs associated with completing the lease agreement

Lease Corp leases equipment to Western Company in a sales-type lease. The present value of the lease payments is $450,000. The lease includes an unguaranteed residual value with a present value of $50,000. Which of the following complete the journal entry for Lease Corp to record this lease? Multiple select question. debit lease receivable $450,000 credit equipment $500,000 credit equipment $450,000 debit lease receivable $500,000

credit equipment $500,000 debit lease receivable $500,000

At the inception of a finance lease for computer equipment, the lessee should debit lease payable debit lease receivable credit lease payable debit right-of-use asset debit computer equipment

credit lease payable debit right-of-use asset

In year 1, Casa Corp. has depreciation expense for income statement purposes of $20,000. The depreciation deduction on the tax return was $30,000. The enacted tax rate is 40%. Casa's pretax income for the year was $100,000, and its taxable income was $90,000. If this is the only difference between pretax income and taxable income, the journal entry to record tax expense for the year would include which of the following entries? (Select all that apply.) credit deferred tax liability of $36,000 credit taxes payable of $36,000 credit deferred tax liability of $4,000 debit deferred tax asset of $10,000 debit tax expense of $40,000

credit taxes payable of $36,000 credit deferred tax liability of $4,000 debit tax expense of $40,000

North Company leased equipment from Lease Corp in a finance/sales-type lease. The annual payments equal $105,000. Payments include $5,000 which Lease Corp will use to pay the annual maintenance fee on the equipment. How should North Company record the first payment? (Select all that apply) Multiple select question. credit cash $100,000 debit maintenance expense $5,000 credit cash $105,000 debit lease payable $105,000 debit lease payable $100,000

debit maintenance expense $5,000 credit cash $105,000 debit lease payable $100,000

n year 1, Heron Corp. has depreciation expense for income statement purposes of $10,000. The depreciation deduction on the tax return was $14,000. The enacted tax rate is 30%. Heron's pretax income for the year was $80,000, and its taxable income was $76,000. If this is the only difference between pretax income and taxable income, the journal entry to record tax expense for the year would include which of the following entries? (Select all that apply.) debit tax expense of $22,800 debit tax expense of $24,000 credit deferred tax liability of $1,200 credit taxes payable of $22,800 credit deferred tax liability of $4,000

debit tax expense of $24,000 credit deferred tax liability of $1,200 credit taxes payable of $22,800

On January 1, Year 1, Tucker Company leases equipment from Franz Inc. over three years of the equipment's five-year estimated useful life. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The present value of the lease payments is $357,710. The annual lease payment is $100,000; the first payment is due on January 1, Year 1. Franz should recognize the first lease payment by (Select all that apply) Multiple select question. debiting interest expense for $20,617 debiting cash for $100,000 debiting lease payable for $79,383 crediting cash for $100,000 debiting lease payable for $100,000 crediting deferred lease revenue for $100,000

debiting cash for $100,000 crediting deferred lease revenue for $100,000

On January 1, Tucker Company leases equipment from Franz Inc. over the equipment's entire estimated useful life of five years. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The annual lease payment is $100,000. Tucker should recognize the first lease payment on January 1, by (Select all that apply) debiting lease payable for $65,503 debiting lease payable for $100,000 debiting interest expense for $34,497 crediting cash for $100,000 debiting lease expense for $100,000

debiting lease payable for $100,000 crediting cash for $100,000

On January 1, Mitchell Company leases equipment from Donelson Corp. for the equipment's entire useful life of six years. Donelson acquired the asset for $239,826 and normally utilizes an 5% interest rate for these types of transactions. The annual lease payment is $45,000. Mitchell should recognize the first lease payment on January 1, by Multiple choice question. debiting cash for $45,000. crediting right-of-use asset for $45,000. debiting interest expense for $11,991. debiting lease payable for $45,000.

debiting lease payable for $45,000.

In year 1, Casa Corp. has depreciation expense for income statement purposes of $20,000. The depreciation deduction on the tax return was $30,000. The enacted tax rate is 40%. If this is the only difference between pretax income and taxable income, Casa would record a Multiple choice question. deferred tax asset of $10,000. deferred tax liability of $4,000. deferred tax asset of $4,000. deferred tax liability of $10,000.

deferred tax liability of $4,000.

Which items on the income statement require separate income tax allocation? (Select all that apply.) discontinued operations restructuring costs gross profit income from continuing operations

discontinued operations income from continuing operations

Sales revenue for the lessor Blank______ the expected residual value to be recovered. Multiple choice question. does not include is equal to does include

does not include

The total of all future taxable amounts is multiplied by the Blank______ tax rate to determine the appropriate balance for the deferred tax liability account.

enacted

What is the tax rate used to measure deferred tax assets and liabilities? statutory rate for the current year enacted rate for the current year effective rate for the current year effective rate in the year the differences reverse enacted rate in the year the differences reverse

enacted rate in the year the differences reverse

Which of the following are required disclosures for lessees and lessors? Multiple select question. future payments in each of the next 5 years future payments for total remaining years description of the leasing arrangements identity of the lessee and lessor

future payments in each of the next 5 years future payments for total remaining years description of the leasing arrangements

The Blank______ is a commitment by the lessee that the lessor will recover a specified residual value when the asset is returned to the lessor.

guaranteed residual value

Sometimes a lease agreement includes a commitment by the lessee that the lessor will recover a specified amount when the asset is returned. This is known as Multiple choice question. guaranteed residual value. bargain purchase option. guaranteed interest value. unguaranteed residual value.

guaranteed residual value.

Agatha Corp. leases store space from Christie Company. Agatha agrees to pay $10,000 per month. In addition, if Agatha exceeds specified sales targets, it will pay additional monthly rent based on a percentage of those excess sales. The additional rent payments are estimated and used to calculate the lessee's lease liability and the lessor's receivable. are estimated and recorded as a separate lease liability and lease receivable for the lessee and lessor, respectively. have no effect on the lessee's lease liability and lessor's lease receivable.

have no effect on the lessee's lease liability and lessor's lease receivable.

The effective interest rate of return the lease payments provide the lessor is referred to as the Multiple choice question. incremental borrowing rate. implicit rate. simple interest rate.

implicit rate.

A purchase option (Select all that apply) Multiple select question. includes a specified exercise price. does not include a specified exercise price. gives the lessor the option to purchase the asset during the lease term or at the end of the lease. gives the lessee the option to purchase the asset during the lease term or at the end of the lease.

includes a specified exercise price. gives the lessee the option to purchase the asset during the lease term or at the end of the lease.

Legal fees for executing lease documents, and the preparation and processing cost of lease documents are referred to as Multiple choice question. nonlease cost components. lease direct costs. initial direct costs. leasehold improvements.

initial direct costs.

After the first lease payment, each lease payment in a finance lease consists of an amount representing Multiple choice question. interest and a reduction in the principal interest only a reduction in the principal only

interest and a reduction in the principal

On January 1, Year 1, Tucker Company leases equipment from Franz Inc. over three years of the equipment's five-year estimated useful life. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The present value of the lease payments is $357,710. The annual lease payment is $100,000; the first payment is due on January 1, Year 1. Tucker should recognize the second lease payment by debiting (round to the nearest whole dollar and select all that apply) Multiple select question. lease payable for $71,383 interest expense for $20,617 interest expense for $28,617 lease payable for $79,383

interest expense for $20,617 lease payable for $79,383

Allocating income taxes among financial statement components in a specific reporting period is known as Blank______ tax allocation. intraperiod interperiod deferred

intraperiod

The short-cut method may be applied only if the maximum possible lease term is Multiple choice question. less than or equal to twelve months more than twelve months less than or equal to six months shorter than the lessee's operating cycle

less than or equal to twelve months

should recognize amortization of the right-of-use asset.

lessee

The Blank______ must disclose its net investment in the lease. Multiple choice question. lessee both the lessee and lessor lessor

lessor

A deferred tax Blank______ occur(s) when there is a future taxable amount. liability asset asset and liability

liability

A taxable amount in a future year creates a deferred tax . (Enter only one word.)

liability

Which of the following are possible reasons for leasing an asset rather than purchasing an asset? (Select all that apply) Multiple select question. lower net income lower periodic payments on the asset fear of obsolescence tax benefits higher debt to asset ratios insufficient cash flow

lower periodic payments on the asset fear of obsolescence tax benefits insufficient cash flow

occurs when tax deductible expenses exceed taxable revenues.

net operating loss

NOL carryforwards produce cash savings because they________ future taxable income.

offset

For a sales-type lease, the lessor should report cash received on the lease as a(n) Blank______ activity. investing noncash investing financing operating

operating

The lessor's gross investment in the lease is the total of periodic rental payments Multiple choice question. plus any residual value. less any guaranteed residual value. only.

plus any residual value.

Selling profit exists in a sales-type lease when the cost of the asset is greater than the fair value. carrying value of the asset is greater than the present value of the lease payments. present value of the lease payments is greater than the cost of the asset. cost of the asset is greater than the present value of the lease payments.

present value of the lease payments is greater than the cost of the asset.

A Blank______ is a lease provision giving the lessee the option to buy the leased property at the end of the lease term at a specified exercise price. Multiple choice question. fair buyout lease buyout purchase option renewal option

purchase option

In a typical finance lease, the first lease payment at the beginning of the lease consists of Multiple choice question. reduction in principal only interest and reduction in principal interest only

reduction in principal only

Lease accounting guidance suggests that a "major part" of the leased asset's life is 75% or more of the life used for tax purposes. remaining economic life plus lease term. lease term. remaining economic life.

remaining economic life.

The lessee's payment in an operating lease is Multiple select question. all recorded as interest expense. reported as a single lease expense. all recorded as amortization expense for the right-of-use asset. allocated between interest expense and amortization for the right-of-use asset.

reported as a single lease expense. allocated between interest expense and amortization for the right-of-use asset.

The Blank______ of leased property is an estimate of what its commercial value will be at the end of the lease term. Multiple choice question. depreciation expense residual value lease payment bargain purchase option

residual value

Which of the following would be included in the lessor's gross investment in the lease? Multiple select question. executory costs depreciation expense residual value periodic lease payments

residual value periodic lease payments

An asset or liability's original value for tax purposes reduced by any amounts included to date on tax returns is referred to as the book value tax basis historic cost

tax basis

A net operating loss occurs when financial reporting income is greater than taxable income. taxable income is less than tax-deductible expenses. income is not subject to tax but is subject to financial reporting.

taxable income is less than tax-deductible expenses.

An operating lease is defined as a lease that does not meet any of the criteria of a finance or sales-type lease. in which the lessor pays for maintenance fees for the asset. in which the lessee must return the asset at the end of the lease. that transfers the rights and responsibilities of ownership to the lessee.

that does not meet any of the criteria of a finance or sales-type lease.

Residual value is an estimate of Multiple choice question. the depreciable base of the leased asset the amount paid by the lessee to acquire the asset at the end of the lease term the commercial value of an asset at the end of the lease term

the commercial value of an asset at the end of the lease term

The lease term is typically considered to be Multiple choice question. 75% of the expected life of the asset. the contractual term of the lease plus any periods covered by options to extend if extension is reasonably certain to occur. the contractual term of the lease plus any periods covered by options to extend regardless of certainty of extension. 90% of the economic life of the asset.

the contractual term of the lease plus any periods covered by options to extend if extension is reasonably certain to occur.

The lease term includes Multiple select question. the contractual term of the lease. 75% of the expected life of the asset. the useful life of the asset. any periods covered by options to extend with significant incentive.

the contractual term of the lease. any periods covered by options to extend with significant incentive.

When a leased asset is returned at the end of the lease term and the actual residual value is less than the initial estimated residual value, Blank______ for the difference between estimate and actual. the lessor records a loss the lessee records a gain the lessee records a loss the lessor records a gain

the lessor records a loss

Which of the following are required disclosures for deferred tax assets and liabilities in the notes to the financial statements? (Select all that apply.) total of all deferred tax assets total gross income for tax purposes total valuation allowance for deferred tax assets effect of each type of temporary difference

total of all deferred tax assets total valuation allowance for deferred tax assets effect of each type of temporary difference

Under IFRS, a lessee will remeasure the variable lease payments that depend on an index or rate when the right-of-use asset is remeasured and when there is a change in cash flows resulting from a change in index or rate. only when there is a change in cash flows resulting from a change in index or rate. only when the right-of-use asset and lease liability are remeasured.

when the right-of-use asset is remeasured and when there is a change in cash flows resulting from a change in index or rate.

In year 1, Kelley estimates bad debt expense of $10,000 for financial reporting purposes. The amount of bad debts deductible on the tax return was $2,000. The difference will be deducted on the tax return in the following year. The income tax rate is 40%. What is the balance in the deferred tax asset account at the end of year 1? $4,000 $8,000 $800 $3,200

$3,200

Brindle Corp. is in its first year of operations and has a net operating loss for tax purposes of $100,000. Brindle expects to be profitable within the next 2 years. The enacted income tax rate is 40%. Which of the following entries are included to record the NOL carryforward? Debit deferred tax asset $40,000. Credit deferred tax liability $40,000. Credit income tax benefit $40,000. Credit taxes payable $40,000. Debit tax expense $40,000.

Debit deferred tax asset $40,000. Credit income tax benefit $40,000.

Sales-type lease with no selling profit

Deferred and expensed over the lease term by increasing the lease receivable

Operating lease

Deferred and expensed over the lease term typically on a straight-line basis

What is the balance sheet effect of a net operating loss carryback that is allowed for a property and casualty insurance company? It creates a tax receivable. It reduces a deferred tax liability. It reduces a deferred tax asset. It creates a deferred tax asset.

It creates a tax receivable.

How should the lessee account for an expected cash payment when the value of the leased asset at the end of the lease is expected to be less than the guaranteed residual value? Multiple choice question. The lessee adjusts the amount of the cash payments paid to the lessor throughout the life of the lease. The lessee does not have to account for predicted differences between the value of the leased asset and the guaranteed residual value. The lessee should increase the right-of-use asset and lease liability by the amount of the expected cash payment. The lessee should increase the right-of-use asset and lease liability by the present value of the expected cash payment.

The lessee should increase the right-of-use asset and lease liability by the present value of the expected cash payment.

What two criteria must be met at the inception of a contract for an arrangement to constitute a lease? Multiple select question. There must be an identified asset. The lessee must have the right to control the use of the asset. The lessor must have the right to control the use of the asset. There must be an identified liability.

There must be an identified asset. The lessee must have the right to control the use of the asset.

True or false: When a bargain purchase option exists, a renewal option is considered irrelevant because it is assumed that the purchase option will be exercised.

True

A permanent difference is recognized for defered tax assets and liabilities. recognized only on the balance sheet. a difference between taxable income and pretax accounting income. always included in taxable income.

a difference between taxable income and pretax accounting income.

Income tax expense is calculated as the result of the combination of prior year income tax expense changes in deferred tax assets and liabilities total assets and liabilities current income tax payable

changes in deferred tax assets and liabilities current income tax payable

In year 1, Heron Corp. has depreciation expense for income statement purposes of $10,000. The depreciation deduction on the tax return was $14,000. The enacted tax rate is 30%. Heron's pretax income for the year was $80,000, and its taxable income was $76,000. If this is the only difference between pretax income and taxable income, the journal entry to record tax expense for the year would include which of the following entries? (Select all that apply.) credit deferred tax liability of $4,000 credit deferred tax liability of $1,200 debit tax expense of $22,800 debit tax expense of $24,000 credit taxes payable of $22,800

credit deferred tax liability of $1,200 debit tax expense of $24,000 credit taxes payable of $22,800

On January 1, Year 1, Tucker Company leases equipment from Franz Inc. over three years of the equipment's five-year estimated useful life. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The present value of the lease payments is $357,710. The annual lease payment is $100,000; the first payment is due on January 1, Year 1. Tucker should recognize the first lease payment by (Select all that apply) Multiple select question. crediting deferred lease revenue for $100,000 debiting cash for $100,000 debiting lease payable for $100,000 debiting lease payable for $79,383 crediting cash for $100,000 debiting interest expense for $20,617

debiting lease payable for $100,000 crediting cash for $100,000

Which of the following items are permanent differences? (Select all that apply.) Multiple select question. life insurance proceeds on an insured executive interest on municipal bonds depreciation deducted on tax return in excess of depreciation expense bad debt expense premiums paid for life insurance on key officers

life insurance proceeds on an insured executive interest on municipal bonds premiums paid for life insurance on key officers

Tax laws permit installment sales, which are recognized in the year of sale for financial reporting purposes, to be reported in the tax return later when cash is received. This results in a deferred tax liability because taxable income is Blank______ than financial income in the year of sale, and Blank______ than financial income in later years when collected. Multiple choice question. higher; lower lower; higher higher; higher lower; lower

lower; higher

Baskin's pretax accounting income in Year 2 is $100,000. Baskin receives cash rental payments in advance for $20,000 in Year 1 and $30,000 in Year 2, which are taxed in the year of receipt. It is expected the rent will be recognized for financial reporting purposes as $25,000 in Year 3 and $25,000 in Year 4. The income tax rate is 40%. What is the amount in the deferred tax asset account at the end of Year 3? $8,000 $20,000 $12,000 $10,000

$10,000

Smith Company receives $500,000 of subscription revenue in advance during Year 1. The subscription revenue is not included on the income statement, but is reported for tax purposes in Year 1. $250,000 will be recognized in Year 2 and $250,000 in Year 3. Smith Company is subject to a 40% tax rate. What is the amount of the deferred tax asset at the end of Year 2? $200,000 $500,000 $250,000 $100,000

$100,000

Smith Company receives $500,000 of subscription revenue in advance during Year 1. The subscription revenue is not included on the income statement, but is reported for tax purposes in Year 1. $250,000 will be recognized in Year 2 and $250,000 in Year 3. Smith Company is subject to a 40% tax rate. What is the amount of the deferred tax asset at the end of Year 2? $250,000 $200,000 $100,000 $500,000

$100,000

Manning Insurance is a property and casualty insurance company in its fifth year of operations. The income tax rate is 40%. Manning had taxable income (loss) as follows: Year 1 $10,000 Year 2 $40,000 Year 3 $30,000 Year 4 $20,000 Year 5 ($300,000) The operating loss for financial reporting purposes is $300,000 in year 5. Assuming Manning is allowed to carryback its NOLs for two years, calculate the net loss after taxes for financial reporting income. $180,000 $300,000 $250,000 $150,000

$180,000

Loran's pretax accounting income in Year 1 is $100,000. Loran had bad debt expense for financial reporting purposes of $14,000 in Year 1. In Year 1, Loran deducted $4,000 in bad debts. Loran expects the temporary difference to reverse $3,000 in Year 2 and $7,000 in Year 3. The income tax rate is 40%. What is the amount in the deferred tax asset account at the end of Year 2? $1,600 $4,000 $7,000 $2,800

$2,800

In Year 1, Warren Company includes $50,000 of installment sales income on its income statement. $25,000 will be collected in Year 2 and $25,000 in Year 3 and will be reported on the tax return when collected. The enacted tax rate is 40%. What amount of deferred tax liability does Warren report at the end of Year 1? Multiple choice question. $50,000 $20,000 $10,000 $0

$20,000

Smith Company receives $500,000 of subscription revenue in advance during Year 1. The subscription revenue is not included on the income statement, but is reported for tax purposes in Year 1. $250,000 will be recognized in Year 2 and $250,000 in Year 3. Smith Company is subject to a 40% tax rate. What is the amount of the deferred tax asset at the end of Year 1? $100,000 $500,000 $250,000 $200,000

$200,000

Smith Company receives $500,000 of subscription revenue in advance during Year 1. The subscription revenue is not included on the income statement, but is reported for tax purposes in Year 1. $250,000 will be recognized in Year 2 and $250,000 in Year 3. Smith Company is subject to a 40% tax rate. What is the amount of the deferred tax asset at the end of Year 1? $500,000 $100,000 $250,000 $200,000

$200,000

For tax years beginning before January 1, 2018, a net operating loss carryback can be applied to reduce previously reported taxable income in the Blank______ prior year(s). 2 10 1 20

2

Smith Company operates a farm-related business. It suffers an operating loss of $100,000 in 20X3. Smith incurred taxable income of $150,000 in 20X2 and taxable income of $75,000 in 20X1. Smith qualifies to use the NOL carryback. Which year(s) will the NOL carryback affect? 20X1 and 20X2 20X1 only 20X2 only

20X2 only

On January 1, 20X1, Tucker Company leases equipment from Franz Inc. over the equipment's entire estimated useful life of five years. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The annual rental payment is $100,000; the first payment is due on January 1, 20X1. At the commencement of the lease, Franz should debit No journal entry is necessary at the commencement of the lease Lease receivable for $431,213 Lease receivable for $100,000

Lease receivable for $431,213

Taylor Company leased an asset from Lease Corp. using an operating lease for equipment with a useful life of seven years. The initial lease term was for three years. After two years, Taylor Company and Lease Corp. agree to extend the lease term by three years, and to change the amount of lease payments. The additional three years were not originally an option. How should Taylor address this lease modification? (Select all that apply) Multiple select question. Terminate the original lease and create a new lease with the new terms Update the right-of-use asset for the increase in present value Recognize straight-line expense of the lease payments Reclassify from an operating lease to a finance lease

Update the right-of-use asset for the increase in present value Reclassify from an operating lease to a finance lease

North Company leased equipment from Lease Corp in a finance/sales-type lease. The annual payments equal $105,000. Payments include $5,000 which Lease Corp will use to pay the annual maintenance fee on the equipment. How should Lease Corp record the first payment? (Select all that apply) credit lease receivable $105,000 debit cash $105,000 debit cash $100,000 credit lease receivable $100,000 credit maintenance fee payable $5,000

debit cash $105,000 credit lease receivable $100,000 credit maintenance fee payable $5,000

On January 1, Mitchell Company leases equipment from Donelson Corp. for the equipment's entire useful life of six years. Donelson acquired the asset for $239,826 and normally utilizes an 5% interest rate for these types of transactions. The annual lease payment is $45,000. Mitchell should recognize the first lease payment on January 1, by debiting lease payable for $45,000. crediting right-of-use asset for $45,000. debiting interest expense for $11,991. debiting cash for $45,000.

debiting lease payable for $45,000.

Which of the following are required disclosures for lessees and lessors? Multiple select question. future payments in each of the next 5 years description of the leasing arrangements future payments for total remaining years identity of the lessee and lessor

future payments in each of the next 5 years description of the leasing arrangements future payments for total remaining years

The Blank______ must disclose its net investment in the lease. Multiple choice question. lessor lessee both the lessee and lessors

lessor

Tax laws permit installment sales, which are recognized in the year of sale for financial reporting purposes, to be reported in the tax return later when cash is received. This results in a deferred tax liability because taxable income is Blank______ than financial income in the year of sale, and Blank______ than financial income in later years when collected. higher; higher higher; lower lower; lower lower; higher

lower; higher

Which of the following items are permanent differences? (Select all that apply.) Multiple select question. premiums paid for life insurance on key officers life insurance proceeds on the death of insured executive interest on municipal bonds bad debt expense in excess of amount deducted for tax purposes warranty expense in excess of amount deducted for tax purposes

premiums paid for life insurance on key officers life insurance proceeds on the death of insured executive interest on municipal bonds

The lease term is typically considered to be Multiple choice question. the contractual term of the lease plus any periods covered by options to extend regardless of certainty of extension. 75% of the expected life of the asset. 90% of the economic life of the asset. the contractual term of the lease plus any periods covered by options to extend if extension is reasonably certain to occur.

the contractual term of the lease plus any periods covered by options to extend if extension is reasonably certain to occur.