Question 1

Caesar Corporation reports municipal interest income on their financial statements. What (if any) book-tax difference will result?

Accepted Answer

A)  Temporary difference; book income greater than taxable income. 
B)  Temporary difference; taxable income greater than book income. 
C)  Permanent difference; book income greater than taxable income. 
D)  No difference; municipal interest is taxable income. 
A)  Temporary difference; book income greater than taxable income. 
B)  Temporary difference; taxable income greater than book income. 
C)  Permanent difference; book income greater than taxable income. 
D)  No difference; municipal interest is taxable income. C

Question 2

Infinity Production acquired a new machine at the beginning of the current year. The machine cost $840,000 with no residual value expected. Infinity uses the straight-line method for financial reporting, assuming a 6-year useful life. The firm classifies the equipment as 5-year MACRS property for tax purposes using the following percentages. $\begin{array}{ll}
\text { Year }& \text { MACRS }(\%) \
1 & 20.00 \% \
2 & 32.00 \
3 & 19.20 \
4 & 11.52 \
5 & 11.52 \
6 & 5.76
\end{array}$ 
The company is subject to a 30% income tax rate and has no other book-tax differences. Income before depreciation and tax is presented below:
$\begin{array}{cc}
&\text {Income before}\
&\text {Tax and}\
\text { Year } & \text { Depreciation } \
\hline 1 & \$ 410,000 \
2& 460,000 \
3& 530,000 \
4 & 700,000 \
5 & 820,000 \
6& 950,000
\end{array}$ 
What is Infinity's taxable income for year 1?

Accepted Answer

A)  $265,000 
B)  $270,000 
C)  $242,000 
D)  $410,000 
A)  $265,000 
B)  $270,000 
C)  $242,000 
D)  $410,000 C

Question 3

When assessing realizability of deferred tax assets, management must consider positive and negative evidence. Which of the following would be considered negative evidence?

Accepted Answer

A)  existing contracts or firm sales backlog 
B)  a carryback or carryforward period that is so brief it could limit realization of tax benefits 
C)  taxable income in prior carryback year(s) if carryback is permitted under the tax law 
D)  a strong earnings history exclusive of the loss that created the future deductible amount 
A)  existing contracts or firm sales backlog 
B)  a carryback or carryforward period that is so brief it could limit realization of tax benefits 
C)  taxable income in prior carryback year(s) if carryback is permitted under the tax law 
D)  a strong earnings history exclusive of the loss that created the future deductible amount B

Question 4

Greenville Industries uses the accrual basis to account for all sales transactions. Sales for 2018 total $540,000. Included in this amount is $15,000 in receivables from sales on installment. Installment sales are considered revenue for book purposes, but not for tax purposes. Operating expenses total $140,000 and are treated the same for book and tax purposes. What is Greenville's taxable income?

Accepted Answer

A)  $385,000 
B)  $400,000 
C)  $525,000 
D)  $540,000 
A)  $385,000 
B)  $400,000 
C)  $525,000 
D)  $540,000

Question 5

TNT Corporation's income tax payable is $230,000 and its tax rate is 30%. Assuming no book-tax differences, what is TNT's income before taxes? (Round your answer to the nearest whole dollar.)

Accepted Answer

A)  $69,000 
B)  $230,000 
C)  $766,667 
D)  $328,571 
A)  $69,000 
B)  $230,000 
C)  $766,667 
D)  $328,571

Question 6

A company may carry back a tax loss for ________ years and carry forward a tax loss for ________ years.

Accepted Answer

A)  20; 2 
B)  1; 15 
C)  2; 20 
D)  15; 1 
A)  20; 2 
B)  1; 15 
C)  2; 20 
D)  15; 1

Question 7

Moose Company has a high conservatism ratio. This could indicate that the company will have to pay higher taxes in the future relative to the present.

Accepted Answer

A) True 
 B)False

Question 8

Infinity Production acquired a new machine at the beginning of the current year. The machine cost $720,000 with no residual value expected. Infinity uses the straight-line method for financial reporting, assuming a 6-year useful life. The firm classifies the equipment as 5-year MACRS property for tax purposes using the following percentages.
 $\begin{array}{ll}
\underline{\text { Year} } &\underline{ \text { MACRS }(\%) }\
1 & 20.00 \% \
2 & 32.00 \
3 & 19.20 \
4 & 11.52 \
5 & 11.52 \
6 & 5.76
\end{array}$
 
The company is subject to a 40% income tax rate and has no other book-tax differences. Income before depreciation and tax is presented below:
 $$\begin{array} { | l | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Income before } \
\text { Tax and } \
\text { Depreciation }
\end{array} \
 \hline 1 & \$ 400,000 \
\hline 2 & 450,000 \
\hline 3 & 520,000 \
\hline 4 & 700,000 \
\hline 5 & 820,000 \
\hline6&950\
\hline
\end{array}$$ 
Complete the following table for Infinity Production.
 $$\begin{array} { | c | c | c | c | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Book } \
\text { depreciation }
\end{array} & \begin{array} { c } 
\text { Tax } \
\text { depreciation }
\end{array} & \begin{array} { c } 
\text { Book } \
\text { income } \
\text { before tax }
\end{array} & \begin{array} { c } 
\text { Taxable } \
\text { income } \
\text { before tax }
\end{array} & \begin{array} { c } 
\text { Income tax } \
\text { expense }
\end{array} & \begin{array} { c } 
\text { Deferred }\
\text { tax liability } \
\text { balance }
\end{array} \
\hline 1 & & & & & & \
\hline 2 & & & & & & \
\hline 3 & & & & & & \
\hline 4 & & & & & & \
\hline 5 & & & & & & \
\hline 6 & & & & & & \
\hline
\end{array}$$

Accepted Answer

Book depreciation is straight-line, comp

Question 9

When a company pays taxes that were previously recorded as a deferred tax liability, the temporary difference ________.

Accepted Answer

A)  originates 
B)  reverses 
C)  increases 
D)  decreases 
A)  originates 
B)  reverses 
C)  increases 
D)  decreases

Question 10

TNT Corporation's income tax payable is $240,000 and its tax rate is 30%. Assuming no book-tax differences, what is TNT's net income? (Round your answer to the nearest whole dollar.)

Accepted Answer

A)  $72,000 
B)  $240,000 
C)  $800,000 
D)  $560,000 
A)  $72,000 
B)  $240,000 
C)  $800,000 
D)  $560,000

Question 11

Betz Corporation's income before taxes is $725,000 and its tax rate is 40%. Included in this amount is $50,000 in municipal bond interest and $15,000 in officers' life insurance. There are no other book-tax differences. Prepare the journal entry to record income tax expense and a reconciliation of the statutory tax rate to the effective tax rate. (Do not round intermediate calculations. Only round your final answer to the nearest tenth percent.)

Accepted Answer

Journal Entry:
 \[\begin{array} { | c |

Question 12

Inferno Inc. is embroiled in a lawsuit. In 2018, they recognize that a loss of $65,000 is probable. Given a tax rate of 40%, how will this be treated in the accounting records?

Accepted Answer

A)  deferred tax asset of $26,000 
B)  deferred tax liability of $26,000 
C)  deferred tax asset of $65,000 
D)  deferred tax liability of $65,000 
A)  deferred tax asset of $26,000 
B)  deferred tax liability of $26,000 
C)  deferred tax asset of $65,000 
D)  deferred tax liability of $65,000

Question 13

Blue Corporation is an IFRS reporter. Blue's taxable income is $700,000 and the company estimates a deferred tax asset of $45,000 due to a book-tax difference in warranty liabilities. Management has assessed that it is probable that it will not realize 30% of the deferred tax asset. Assuming a 40% tax rate, how should the realizable deferred tax asset be recorded?

Accepted Answer

A)  $$\begin{array} { | c | r | r | } 
\hline \text { Income Tax Expense } & 235,000 & \
\hline \text { Deferred Tax Asset } & 45,000 & \
\hline \text { Income Tax Payable } & & 280,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Income Tax Expense } & 248,500 & \
\hline \text { Deferred Tax Asset } & 31,500 & \
\hline \text { Income Tax Payable } & & 280,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Deferred Tax Asset } & 13,500 & \
\hline \text { Valuation Allowance for Deferred Tax } & & 13,500 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Income Tax Expense } & 13,500 & \
\hline \text { Deferred Tax Asset } & 31,500 & \
\hline \text { Valuation Allowance- for Deferred Tax } & & 45,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | r | r | } 
\hline \text { Income Tax Expense } & 235,000 & \
\hline \text { Deferred Tax Asset } & 45,000 & \
\hline \text { Income Tax Payable } & & 280,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Income Tax Expense } & 248,500 & \
\hline \text { Deferred Tax Asset } & 31,500 & \
\hline \text { Income Tax Payable } & & 280,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Deferred Tax Asset } & 13,500 & \
\hline \text { Valuation Allowance for Deferred Tax } & & 13,500 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Income Tax Expense } & 13,500 & \
\hline \text { Deferred Tax Asset } & 31,500 & \
\hline \text { Valuation Allowance- for Deferred Tax } & & 45,000 \
\hline
\end{array}$$

Question 14

In 2018 Tetra Corp. generated $583,000 in revenues and incurs $276,000 in expenses. There are no permanent or temporary book-tax differences. Tetra has a deferred tax asset of $61,250 related to a net operating loss of $175,000 from the previous year.
Assuming a 35% tax rate, prepare the tax related journal entry for the current year.

Accepted Answer

\[\begin{array} { | c | r | r | } 
\hlin

Question 15

The Betta Group reports taxable income in the amount of $625,000 and has a 30% tax rate. Additionally, the company estimates a deferred tax asset of $45,000 due to a book-tax difference in warranty liabilities. After reviewing all available evidence, management determines that only 60% of this amount will ultimately result in tax-deductible expenses over the warranty period.
Prepare the necessary journal entries to record the tax provision and valuation allowance for Betta Group under (a) U.S. GAAP and (b) IFRS.

Accepted Answer

(a) U.S. GAAP
 \[\begin{array} { | l | r

Question 16

Betta Group just completed its second year of operations and has a deferred tax asset of $82,000 related to a net operating loss of $205,000 from the previous year. In the current year Betta generates $635,000 in revenues and incurs $341,000 in expenses. There are no permanent or temporary book-tax differences. Assuming the same tax rate as last year, what is the tax related journal entry for the current year?

Accepted Answer

A)  $$\begin{array} { | c | r | r | } 
\hline \text { Income Tax Refund Receivable } & 82,000 & \
\hline \text { Deferred Tax Asset } & & 82,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Deferred Tax Asset } & 82,000 & \
\hline \text { Income Tax Benefit } & & 82,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Income Tax Expense } & 117,600 & \
\hline \text { Income Tax Payable } & & 35,600 \
\hline \text { Deferred Tax Asset } & & 82,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Income Tax Expense } & 254,000 & \
\hline \text { Income Tax Payable } & & 172,000 \
\hline \text { Deferred Tax Asset } & & 82,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | r | r | } 
\hline \text { Income Tax Refund Receivable } & 82,000 & \
\hline \text { Deferred Tax Asset } & & 82,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Deferred Tax Asset } & 82,000 & \
\hline \text { Income Tax Benefit } & & 82,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Income Tax Expense } & 117,600 & \
\hline \text { Income Tax Payable } & & 35,600 \
\hline \text { Deferred Tax Asset } & & 82,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Income Tax Expense } & 254,000 & \
\hline \text { Income Tax Payable } & & 172,000 \
\hline \text { Deferred Tax Asset } & & 82,000 \
\hline
\end{array}$$

Question 17

The amount of income that a company reports on its tax return is known as ________.

Accepted Answer

A)  refundable income 
B)  taxable income 
C)  deductible income 
D)  net income 
A)  refundable income 
B)  taxable income 
C)  deductible income 
D)  net income

Question 18

Gallagher Corporation's book income before taxes is $600,000 and its tax rate is 35%. Included in the income before taxes is $50,000 in fines and penalties. There are no other book-tax differences. Prepare the journal entry to record income tax expense and a reconciliation of the statutory tax rate to the effective tax rate. (Do not round intermediate calculations. Only round your final answer to the nearest tenth percent.)

Accepted Answer

Journal Entry:
($600

Question 19

Woods Company reports income before taxes in the amount of $925,000. The current tax expense is $365,375 and the effective tax rate is 27%. What is the conservatism ratio for Woods Company?

Accepted Answer

A)  0.68 
B)  0.19 
C)  0.45 
D)  0.40 
A)  0.68 
B)  0.19 
C)  0.45 
D)  0.40

Question 20

With regard to deferred tax items, a company must disclose all of the following except ________.

Accepted Answer

A)  the amount and expiration of carryforwards for net operating losses and unused tax credits 
B)  the amount of the valuation allowance or any change in valuation allowance 
C)  the individual components of all significant deferred tax assets and deferred tax liabilities 
D)  All of the above must be disclosed. 
A)  the amount and expiration of carryforwards for net operating losses and unused tax credits 
B)  the amount of the valuation allowance or any change in valuation allowance 
C)  the individual components of all significant deferred tax assets and deferred tax liabilities 
D)  All of the above must be disclosed.

Caesar Corporation reports municipal interest income on their financial statements. What (if any) book-tax difference will result?

When assessing realizability of deferred tax assets, management must consider positive and negative evidence. Which of the following would be considered negative evidence?

TNT Corporation's income tax payable is $230,000 and its tax rate is 30%. Assuming no book-tax differences, what is TNT's income before taxes? (Round your answer to the nearest whole dollar.)

A company may carry back a tax loss for years and carry forward a tax loss for years.

Moose Company has a high conservatism ratio. This could indicate that the company will have to pay higher taxes in the future relative to the present.

When a company pays taxes that were previously recorded as a deferred tax liability, the temporary difference ________.

TNT Corporation's income tax payable is $240,000 and its tax rate is 30%. Assuming no book-tax differences, what is TNT's net income? (Round your answer to the nearest whole dollar.)

Inferno Inc. is embroiled in a lawsuit. In 2018, they recognize that a loss of $65,000 is probable. Given a tax rate of 40%, how will this be treated in the accounting records?

The amount of income that a company reports on its tax return is known as ________.

Woods Company reports income before taxes in the amount of $925,000. The current tax expense is $365,375 and the effective tax rate is 27%. What is the conservatism ratio for Woods Company?

With regard to deferred tax items, a company must disclose all of the following except ________.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters

Exam 17: Accounting for Income Taxes

Caesar Corporation reports municipal interest income on their financial statements. What (if any) book-tax difference will result?

When assessing realizability of deferred tax assets, management must consider positive and negative evidence. Which of the following would be considered negative evidence?

TNT Corporation's income tax payable is $230,000 and its tax rate is 30%. Assuming no book-tax differences, what is TNT's income before taxes? (Round your answer to the nearest whole dollar.)

A company may carry back a tax loss for ________ years and carry forward a tax loss for ________ years.

Moose Company has a high conservatism ratio. This could indicate that the company will have to pay higher taxes in the future relative to the present.

When a company pays taxes that were previously recorded as a deferred tax liability, the temporary difference ________.

TNT Corporation's income tax payable is $240,000 and its tax rate is 30%. Assuming no book-tax differences, what is TNT's net income? (Round your answer to the nearest whole dollar.)

Inferno Inc. is embroiled in a lawsuit. In 2018, they recognize that a loss of $65,000 is probable. Given a tax rate of 40%, how will this be treated in the accounting records?

The amount of income that a company reports on its tax return is known as ________.

Woods Company reports income before taxes in the amount of $925,000. The current tax expense is $365,375 and the effective tax rate is 27%. What is the conservatism ratio for Woods Company?

With regard to deferred tax items, a company must disclose all of the following except ________.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters

A company may carry back a tax loss for years and carry forward a tax loss for years.