Question 1

Which of the following statements is true with respect to a company's effective tax rate reconciliation?

Accepted Answer

A)   The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's net income from continuing operations.
B)   The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's taxable income.
C)   The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's book equivalent of taxable income.
D)   The hypothetical tax expense is another name for the company's effective tax rate.E) B) and C)
F) C) and D)

Question 2

Lafayette,Inc.completed its first year of operations with a pretax loss of $800,000.The tax return showed a net operating loss of $750,000,which the company will carryforward.The $50,000 book-tax difference results from a disallowed deduction for meals and entertainment.Management has determined that they should record a valuation allowance equal to the net deferred tax asset.Assuming a tax rate of 34%,prepare the journal entries to record the deferred tax provision and the valuation allowance.

Accepted Answer

The disallowed meals and enter...

Question 3

In general,a temporary difference reflects a difference in the financial basis and tax basis of an asset or liability on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)   ASC 740 requires a company to complete a two-step analysis every time it evaluates its uncertain tax positions.
B)   ASC 740 requires a company to complete step 2 (measurement)  in its evaluation of its uncertain tax positions only if it is more-likely-than-not that that its tax position will be sustained on its merits (recognition) .
C)   ASC 740 allows a company to take into account the probability of audit by a tax authority in step 1 (measurement)  in its evaluation of its uncertain tax positions.
D)   ASC 740 allows a company to record a tax benefit from an uncertain tax position only if it is probable the benefit will be sustained on audit by a tax authority.E) None of the above
F) A) and D)

Question 5

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized.

Accepted Answer

A) True 
 B)False

Question 6

Robinson Company had a net deferred tax liability of $34,000 at the beginning of the year,representing a net taxable temporary difference of $100,000.During the year,Robinson reported pretax book income of $400,000.Included in the computation were favorable temporary differences of $50,000 and unfavorable temporary differences of $20,000.During the year,the company's tax rate increased from 34% to 35%.Robinson's deferred income tax expense or benefit for the current year would be:

Accepted Answer

A)   Net deferred tax benefit of $10,500.
B)   Net deferred tax expense of $10,500.
C)   Net deferred tax benefit of $11,500.
D)   Net deferred tax expense of $11,500.E) A) and D)
F) B) and D)

Question 7

Kedzie Company determined that the book basis of its liability for "other post-retirement benefits" (OPEB) exceeded the tax basis of this account by $10,000,000.This basis difference is characterized as:

Accepted Answer

A)   Deductible temporary difference.
B)   Taxable temporary difference.
C)   Favorable permanent difference.
D)   Unfavorable permanent difference.E) A) and B)
F) A) and C)

Question 8

A cumulative financial accounting (book)loss over three years likely would be considered significant negative evidence in a valuation allowance analysis.

Accepted Answer

A) True 
 B)False

Question 9

Heron Corporation reported pretax book income of $4,000,000.Included in the computation were favorable temporary differences of $500,000,unfavorable temporary differences of $700,000,and unfavorable permanent differences of $200,000.Using a tax rate of 34%,compute Heron's current income tax expense or benefit.

Accepted Answer

$1,496,000...

Question 10

Izzo Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $800,000.The favorable book-tax difference of $200,000 was due to a $100,000 favorable temporary difference relating to depreciation,an unfavorable temporary difference of $50,000 due to accrued vacation pay,and a $150,000 favorable permanent difference from the domestic manufacturing deduction.Izzo Company's applicable tax rate is 34%.
a.Compute Izzo Company's current income tax expense.
b.Compute Izzo Company's deferred income tax expense or benefit.
c.Compute Izzo Company's effective tax rate.
d.Provide a reconciliation of Izzo Company's effective tax rate with its hypothetical tax rate of 34%.

Accepted Answer

Total income tax provision =...

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account.This basis difference is characterized as:

Accepted Answer

A)   Deductible temporary difference.
B)   Taxable temporary difference.
C)   Favorable permanent difference.
D)   Unfavorable permanent difference.E) None of the above
F) A) and C)

Question 13

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?

Accepted Answer

A)   A publicly traded company should disclose the approximate "tax effect" (dollar amounts)  of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements.
B)   A publicly traded company should disclose the approximate "tax effect" (dollar amounts)  of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements.
C)   A privately-held company should disclose the approximate "tax effect" (dollar amounts)  of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements.
D)   A privately-held company should disclose the approximate "tax effect" (dollar amounts)  of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements.E) A) and D)
F) B) and C)

Question 14

Assume Congress reduces the corporate tax rate from 35 percent to 25 percent effective in 2017.The tax rate change will affect only deferred tax assets and liabilities that arise in 2017 and thereafter.

Accepted Answer

A) True 
 B)False

Question 15

Potential interest and penalties that would be assessed on a disallowed unrecognized tax benefit must be recorded in a company's income tax expense under ASC 740.

Accepted Answer

A) True 
 B)False

Question 16

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following items is not a temporary difference?

Accepted Answer

A)   Vacation pay accrued for tax purposes in a prior period is deducted in the current period.
B)   Tax depreciation for the period exceeds book depreciation.
C)   A goodwill impairment expense is recorded on the income statement; the goodwill did not have a tax basis when it was created.
D)   Bad debts charged off in the current period exceed the bad debts accrued in the current period.E) A) and D)
F) None of the above

Question 18

Which of the following statements is true?

Accepted Answer

A)   In determining if a valuation allowance is needed, positive evidence is considered more persuasive than negative evidence.
B)   In determining if a valuation allowance is needed, negative evidence is considered more persuasive than positive evidence.
C)   In determining if a valuation allowance is needed, negative and positive evidence must be evaluated equally.
D)   In determining if a valuation allowance is needed, only negative evidence is evaluated.E) A) and C)
F) None of the above

Question 19

The focus of ASC 740 is the income statement.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Accepted Answer

A)   Accelerated tax depreciation in excess of straight-line book depreciation.
B)   Prepayment income reported as income on the tax return prior to being reported as income on the financial income statement.
C)   Gain reported on the income statement prior to being reported on the tax return.
D)   Prepayment deduction reported on the tax return prior to being reported on the income statement.E) A) and B)
F) A) and C)

Exam 6: Accounting for Income Taxes

Correct Answer
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Correct Answer
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The disallowed meals and enter...
View Answer

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

Correct Answer
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Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Correct Answer
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Which of the following statements is true?

Correct Answer
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In general,a temporary difference reflects a difference in the financial basis and tax basis of an asset or liability on the balance sheet.

Correct Answer
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Assume Congress reduces the corporate tax rate from 35 percent to 25 percent effective in 2017.The tax rate change will affect only deferred tax assets and liabilities that arise in 2017 and thereafter.

Correct Answer
verified

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.

Correct Answer
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Which of the following statements is true with respect to a company's effective tax rate reconciliation?

Correct Answer
verified

Correct Answer
verified
$1,496,000...
View Answer

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized.

Correct Answer
verified

A cumulative financial accounting (book)loss over three years likely would be considered significant negative evidence in a valuation allowance analysis.

Correct Answer
verified

Correct Answer
verified
Total income tax provision =...
View Answer

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

Correct Answer
verified

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account.This basis difference is characterized as:

Correct Answer
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The focus of ASC 740 is the income statement.

Correct Answer
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Potential interest and penalties that would be assessed on a disallowed unrecognized tax benefit must be recorded in a company's income tax expense under ASC 740.

Correct Answer
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Which of the following items is not a temporary difference?

Correct Answer
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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?

Correct Answer
verified

Kedzie Company determined that the book basis of its liability for "other post-retirement benefits" (OPEB) exceeded the tax basis of this account by $10,000,000.This basis difference is characterized as:

Correct Answer
verified

Exam 6: Accounting for Income Taxes

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe disallowed meals and enter...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

In general,a temporary difference reflects a difference in the financial basis and tax basis of an asset or liability on the balance sheet.

Correct AnswerverifiedShow Answer

Assume Congress reduces the corporate tax rate from 35 percent to 25 percent effective in 2017.The tax rate change will affect only deferred tax assets and liabilities that arise in 2017 and thereafter.

Correct AnswerverifiedShow Answer

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.

Correct AnswerverifiedShow Answer

Which of the following statements is true with respect to a company's effective tax rate reconciliation?

Correct AnswerverifiedShow Answer

Correct Answerverified$1,496,000...View AnswerShow Answer

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized.

Correct AnswerverifiedShow Answer

A cumulative financial accounting (book)loss over three years likely would be considered significant negative evidence in a valuation allowance analysis.

Correct AnswerverifiedShow Answer

Correct Answerverified Total income tax provision =...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account.This basis difference is characterized as:

Correct AnswerverifiedShow Answer

The focus of ASC 740 is the income statement.

Correct AnswerverifiedShow Answer

Potential interest and penalties that would be assessed on a disallowed unrecognized tax benefit must be recorded in a company's income tax expense under ASC 740.

Correct AnswerverifiedShow Answer

Which of the following items is not a temporary difference?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Kedzie Company determined that the book basis of its liability for "other post-retirement benefits" (OPEB) exceeded the tax basis of this account by $10,000,000.This basis difference is characterized as:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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The disallowed meals and enter...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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$1,496,000...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Total income tax provision =...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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