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Exam 6: Accounting for Income Taxes

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Question 61

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Weaver Company had a net deferred tax liability of $34,476 at the beginning of the year, representing a net taxable temporary difference of $101,400 (taxed at 34 percent) . During the year, Weaver reported pretax book income of $405,600. Included in the computation were unfavorable temporary differences of $51,400 and favorable temporary differences of $22,800. At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Weaver's deferred income tax expense or benefit for the current year would be:

A) Net deferred tax benefit of $6,006.
B) Net deferred tax expense of $6,006.
C) Net deferred tax benefit of $19,188.
D) Net deferred tax expense of $19,188.

E) All of the above
F) B) and C)

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Question 62

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Potter, Incorporated reported pretax book income of $5,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by $300,000. Potter sold a fixed asset and reported book gain of $60,000 and tax gain of $80,000. Finally, the company received $50,000 of tax-exempt municipal bond interest. Compute Potter's deferred income tax expense or benefit.

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$37,800 deferred income tax ex...

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Question 63

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Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

Tuna Corporation reported pretax book income of $1,005,000. During the current year, the net reserve for warranties increased by $27,500. In addition, book depreciation exceeded tax depreciation by $105,000. Finally, Tuna subtracted a dividends received deduction of $17,500 in computing its current-year taxable income. Book equivalent of taxable income is:

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

Purple Rose Corporation reported pretax book income of $500,000. Tax depreciation exceeded book depreciation by $300,000. In addition, the company received $250,000 of tax-exempt life insurance proceeds. The prior-year tax return showed taxable income of $100,000. Compute Purple Rose's current income tax expense or benefit.

The focus of ASC 740 is on the income statement.

Publicly traded companies usually file their financial statements before they file their federal income tax returns.

Brown Corporation reports $100,000 of gain from the sale of land on its income statement. For tax purposes, Brown uses the installment method and reports gain of $10,000. The $90,000 difference in the gain reported is a deductible temporary difference.

Tuna Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. Finally, Tuna subtracted a dividends received deduction of $15,000 in computing its current-year taxable income. Book equivalent of taxable income is:

Which of the following items is not considered evidence in determining if a valuation allowance is necessary?

The Emerging Issues Task Force assists the FASB by providing guidance on the implementation of ASC 740 and other accounting pronouncements.

A valuation allowance is recorded against a deferred tax asset when:

Cardinal Corporation reported pretax book income of $3,000,000. During the current year, the reserve for bad debts increased by $200,000. In addition, book depreciation exceeded tax depreciation by $100,000. Cardinal sold a fixed asset and reported a book gain of $60,000 and a tax gain of $80,000. Finally, Cardinal deducted $50,000 of domestic production activities deduction on its tax return. Compute Cardinal's current income tax expense or benefit.

Temporary differences that are cumulatively "favorable" are referred to as taxable temporary differences.

ASC 740 deals with accounting for uncertain tax positions.

Green Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $50,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Green subtracted a dividends received deduction of $25,000 in computing its current-year taxable income. Green's cash tax rate is:

Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

Purple Rose Corporation reported pretax book income of $560,000. Tax depreciation exceeded book depreciation by $303,600. In addition, the company received $310,000 of tax-exempt life insurance proceeds. The prior-year tax return showed taxable income of $101,200. Compute Purple Rose's current income tax expense or benefit.

Whitman Corporation reported pretax book income of $400,000. Book depreciation exceeded tax depreciation by $100,000. In addition, the company accrued vacation pay of $50,000 that was not deductible until paid in the next year. Whitman has a net operating loss carryforward of $200,000 from the prior year. Compute the company's deferred income tax expense or benefit for the current year.