Exam 16: Accounting for Income Taxes

A company has income before tax of $200,000.The company also has a temporary difference of $80,000 relating to capital cost allowance (CCA)in excess of depreciation expense recorded for the year.There are no other permanent or temporary differences.The income tax rate is 40%. Requirement: Compute the amount of taxes payable and income tax expense.

During its first year of operations,Karol Corp.reported the following information: • Income before income taxes for the year was $550,000 and the tax rate was 35%. • Depreciation expense was $100,000 and CCA was $50,000. • Warranty expense was reported at $20,000,while actual cash paid out was $10,000. • $25,000 of expenses included in income were not deductible for tax purposes. • No other items affected deferred tax amounts besides these transactions. Requirement: Prepare the journal entries to record income tax expense for the year.

Which of the following is an example of a "permanent difference"?

What is the income tax payable under the deferral method for F2013? F2013 F2014 F2015 Income before tax 120,000 110,000 120,000 Taxable income 85,000 95,000 105,000 Tax rate 30\% 25\% 30\%

During its first year of operations,Keen Corp.reported the following information: • Income before income taxes for the year was $650,000 and the tax rate was 25%. • Depreciation expense was $200,000 and CCA was $100,000.The carrying amount of property,plant,and equipment at the end of the year was $720,000,while UCC was $820,000. • Warranty expense was reported at $110,000,while actual cash paid out was $60,000. • $15,000 of expenses included in income were not deductible for tax purposes. • No other items affected deferred tax amounts besides these transactions. Requirement: a.Prepare the journal entries to record income tax expense for the year. b.Assume Keen reported a loss instead of income in its first year of operations.Explain what accounting policy choices are available to Keen to record the tax implications of the loss,and provide a recommendation.

When will there be recapture and a capital gain?

What adjustment is required to the opening deferred taxes as a result of the rate change? Opening deductible (taxable) temporary differences (400,000) Current year deductible (taxable) temporary (100,000) differences Tax rate (prior year) 30\% Tax rate (current year) 40\%

A company had taxable income of $2 million in fiscal 2013 and paid taxes of 0.4 million; the company incurred a loss of $0.5 million in fiscal 2015 when the tax rate is 30%.How much refund is the company entitled to?

In the first year of operations,a company reports taxable income of $225,000 and paid a tax rate of 28%.It is now the end of the second year,and the company has a loss of $375,000 for tax purposes.The company's management believes it is probable the company will be able to use up its tax losses.The tax rate is currently 32%%. Requirement: Compute the amounts of income tax receivable and/ or deferred income tax asset in the current (second)year.

Which of the following is not an example of a "temporary difference"?

When will there be a recapture of depreciation?

SEG Company reported $490,000 in income tax expense for the year under the accrual method.Its balance sheet reported an overall increase in deferred income tax liability of $20,000 and a decrease in income tax payable of $25,000.How much would SEG report as income tax expense had it used the taxes payable method?

What is the effect on the deferred tax balance as a result of the rate change? Opening deductible (taxable) temporary differences (400,000) Current year deductible (taxable) temporary (100,000) differences Tax rate (prior year) 30\% Tax rate (current year) 40\%

When will a terminal loss occur?

What is the tax expense under the deferral method for F2015? F2013 F2014 F2015 Income before tax 120,000 110,000 150,000 Taxable income 85,000 95,000 105,000 Tax rate 30\% 25\% 35\%

Under the accrual method,what is the effect of the current year temporary difference in F2015? F2014 F2015 Deferred tax liability 27,500 Revenue 150,000 Taxable income 105,000 Tax rate 25\% 35\%

A company had taxable income of $12 million in fiscal 2013 and paid taxes of 4.8 million; the company incurred a loss of $7 million in fiscal 2015 when the tax rate is 50%.How much refund is the company entitled to?

For each of the following differences between the amount of taxable income and income recorded for financial reporting purposes,compute the effect of each difference on deferred taxes balances on the balance sheet.Treat each item independently of the others.Assume a tax rate of 25%.

Indicate whether the item would result in future income taxes being higher,future income taxes being lower or neither:

Which method reflects the tax effect in the period that tax is payable?