Question 1

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.

Accepted Answer

$686,700 c...

Question 2

ASC 740 permits a corporation to net its deferred tax assets and deferred tax liabilities regardless of the jurisdiction in which they arise.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements concerning the classification of deferred tax assets and liabilities is true?

Accepted Answer

A)   A deferred tax asset is classified as noncurrent if the company expects the future tax benefit to be received more than 12 months from the balance sheet date.
B)   All deferred tax assets and liabilities are treated as noncurrent.
C)   A deferred tax asset related to a bad debt reserve is classified as current if the related accounts receivable is classified as a current asset.
D)   A deferred tax asset related to inventory capitalization is classified as noncurrent if the company uses a FIFO accounting method and the inventory to which the deferred tax asset relates will not be treated as sold within 12 months from the balance sheet date.E) B) and C)
F) A) and B)

Question 4

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 5

Costello Corporation reported pretax book income of $500,000. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, Costello received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Costello's deferred income tax expense or benefit would be:

Accepted Answer

A)   $7,350 net deferred tax expense.
B)   $7,350 net deferred tax benefit.
C)   $7,950 net deferred tax benefit.
D)   $7,980 net deferred tax expense.E) All of the above
F) A) and B)

Question 6

Irish Corporation reported pretax book income of $1,000,000 in 2018. Included in the computation were favorable temporary differences of $300,000, unfavorable temporary differences of $100,000, and favorable permanent differences of $200,000. Compute Irish's book equivalent of taxable income. Use this number to compute the company's total income tax provision or benefit for 2018.

Accepted Answer

BETI of $800,000, total income...

Question 7

Which of the following statements best describes "book equivalent of taxable income" (BETI) ?

Accepted Answer

A)   BETI is book income adjusted for all permanent and temporary differences.
B)   BETI is book income adjusted for all temporary differences.
C)   BETI is book income adjusted for all permanent differences.
D)   BETI is book income before adjustment for all permanent and temporary differences.E) A) and D)
F) A) and C)

Question 8

MAC, Inc. completed its first year of operations with a pretax loss of $300,000. The tax return showed a net operating loss of $500,000. The $200,000 book-tax difference results from excess tax depreciation over book depreciation. Management has determined that they should record a valuation allowance equal to the net deferred tax asset. Prepare the journal entries to record the deferred tax provision and the valuation allowance.

Accepted Answer

The deferred tax liability rel...

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

Swordfish 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. In prior years, tax depreciation exceeded book depreciation by a cumulative amount of $500,000. Finally, Swordfish subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Swordfish's deferred income tax expense or benefit would be:

Accepted Answer

A)   $23,100 net deferred tax expense.
B)   $23,100 net deferred tax benefit.
C)   $26,250 net deferred tax benefit.
D)   $26,250 net deferred tax expense.E) All of the above
F) B) and D)

Question 12

Which of the following statements is true?

Accepted Answer

A)   A change in capitalized inventory costs under §263A always produces an increase in a deferred tax asset.
B)   A change in capitalized inventory costs under §263A always produces a decrease in a deferred tax asset.
C)   A change in capitalized inventory costs under §263A can produce an increase or a decrease in a deferred tax asset.
D)   A change in capitalized inventory costs under §263A always produces a permanent difference.E) A) and B)
F) A) and C)

Question 13

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) B) and C)
F) A) and D)

Question 14

Which of the following statements about uncertain tax position disclosures is false?

Accepted Answer

A)   ASC 740 requires a company to disclose the amount of unrecognized tax benefits for each country in which it files a tax return.
B)   ASC 740 requires a company to disclose the aggregate amount of unrecognized tax benefits, separated between U.S., state and local, and international tax positions.
C)   ASC 740 requires a company to disclose the aggregate amount of unrecognized tax benefits without separation between U.S., state and local, and international tax positions.
D)   None of the choices are correct.E) All of the above
F) C) and D)

Question 15

Which of the following statements about ASC 740 as it relates to uncertain tax positions is true?

Accepted Answer

A)   ASC 740 deals with all tax benefits involving income and non-income taxes.
B)   ASC 740 deals with whether a recognized income tax benefit will be realized.
C)   ASC 740 deals with recognized tax benefits related to income tax positions claimed on a filed tax return.
D)   ASC 740 deals with recognized tax benefits related to income tax positions regardless of whether the item is taken on a filed tax return.E) None of the above
F) A) and C)

Question 16

Morgan Corporation determined that $2,000,000 of the research credit on its current year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made the following assessment of the company's potential tax benefit from the credit and its probability of occurring.
  Under ASC 740, what amount of the tax benefit related to the research credit can Morgan recognize in calculating its income tax provision in the current year?

Accepted Answer

$1,500,000.
The amou...

Question 17

Marlin 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, Marlin subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Marlin's current income tax expense or benefit would be:

Accepted Answer

A)   $236,250 tax expense.
B)   $233,100 tax expense.
C)   $210,000 tax expense.
D)   $205,800 tax expense.E) A) and B)
F) None of the above

Question 18

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

Accepted Answer

A)   It is probable that the deferred tax asset will not be realized in the future.
B)   It is more likely than not that the deferred tax asset will not be realized in the future.
C)   It is highly likely the deferred tax asset will not be realized in the future.
D)   It is remote the deferred tax asset will not be realized in the future.E) A) and B)
F) A) and C)

Question 19

Which of the following best describes the focus of ASC 740?

Accepted Answer

A)   ASC 740 uses an "asset and liability approach" that focuses on the balance sheet.
B)   ASC 740 uses an "income and expense approach" that focuses on the income statement.
C)   ASC 740 uses a "taxes paid or refunded approach" that focuses on the statement of cash flows.
D)   ASC 740 uses a "permanent differences approach" that focuses on the effective tax rate reported in the income tax note to the financial statements.E) None of the above
F) B) and D)

Question 20

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) B) and C)

Exam 17: Accounting for Income Taxes

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

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

Correct Answer
verified

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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Which of the following statements best describes "book equivalent of taxable income" (BETI) ?

Correct Answer
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Correct Answer
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BETI of $800,000, total income...
View Answer

Which of the following statements is true?

Correct Answer
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Correct Answer
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$1,500,000.
The amou...
View Answer

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

Correct Answer
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Correct Answer
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Correct Answer
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$686,700 c...
View Answer

Which of the following statements is true?

Correct Answer
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Which of the following statements concerning the classification of deferred tax assets and liabilities is true?

Correct Answer
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Correct Answer
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ASC 740 permits a corporation to net its deferred tax assets and deferred tax liabilities regardless of the jurisdiction in which they arise.

Correct Answer
verified

Which of the following best describes the focus of ASC 740?

Correct Answer
verified

Correct Answer
verified
The deferred tax liability rel...
View Answer

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

Correct Answer
verified

Which of the following statements about uncertain tax position disclosures is false?

Correct Answer
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Which of the following statements about ASC 740 as it relates to uncertain tax positions is true?

Correct Answer
verified

Exam 17: Accounting for Income Taxes

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 AnswerverifiedShow Answer

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

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

Which of the following statements best describes "book equivalent of taxable income" (BETI) ?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedBETI of $800,000, total income...View AnswerShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Correct Answerverified$1,500,000.The amou...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answerverified$686,700 c...View AnswerShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Which of the following statements concerning the classification of deferred tax assets and liabilities is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

ASC 740 permits a corporation to net its deferred tax assets and deferred tax liabilities regardless of the jurisdiction in which they arise.

Correct AnswerverifiedShow Answer

Which of the following best describes the focus of ASC 740?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe deferred tax liability rel...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

Which of the following statements about uncertain tax position disclosures is false?

Correct AnswerverifiedShow Answer

Which of the following statements about ASC 740 as it relates to uncertain tax positions is true?

Correct AnswerverifiedShow 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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BETI of $800,000, total income...
View Answer

Correct Answer
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Correct Answer
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$1,500,000.
The amou...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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$686,700 c...
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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The deferred tax liability rel...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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