Exam 17: Accounting for Income Taxes

Piper Inc.'s income before taxes is $550,000 and its tax rate is 40%. Piper included $30,000 of interest from municipal bonds in the $550,000. 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.)

IFRS uses a two-step process in recording the realizability of deferred tax assets.

The following information applies to the operations of MK Inc. for 2018 and 2019. Assume a tax rate of 25% for both years. 2018 information: Sales on account in the amount of $660,000 Warranty expense and associated liability in the amount of $110,000 No other expenses incurred. 2019 information: Sales on account in the amount of $205,000 Warranty repairs made in the amount of $63,000 No expenses incurred. What is MK's book income for 2018?

How will a change in statutory tax rates affect prior period financial statements and current year income tax expense?

Infinity Production acquired a new machine at the beginning of the current year. The machine cost $900,000 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. (\%) 1 20.00\% 2 32.00 3 19.20 4 11.52 5 11.52 6 5.76 The company is subject to a 20% income tax rate and has no other book-tax differences. Income before depreciation and tax is presented below: Income before Taxand Year Depreciation 1 \ 450,000 2 500,000 3 570,000 4 700,000 5 820,000 6 950,000 What is Infinity's deferred tax asset or deferred tax liability at the end of year 3?

TLR Productions has book income of $450,000, and a tax rate of 35%. Assuming there are no book-tax differences, what is TLR's income tax expense?

Kramerica Corporation took an aggressive tax position in its current year's tax return, claiming a $370,000 deduction. The company reported $770,000 in taxable income before considering the tax deduction, and is subject to a 33% income tax rate. Tax authorities have challenged this type of tax deduction in the past and Kramerica is now concerned about the realizability of this tax deduction in the future. However, management believes that it is more likely than not that the firm will sustain the tax benefits upon examination by tax authorities. The company provides the following analysis regarding the probabilities of sustaining the tax deduction: Possible estimated outcome Individual probability of occurring 370,000 10\% \ 333,000 12\% \ 275,000 29\% \ 142,000 26\% \ 101,000 23\% Prepare the journal entry to record the current year's tax provision and the liability for the uncertain tax provision.

Violet Corporation reported a loss in 2018 of $630,000. The company reported taxable income of $189,000 in 2016 and $205,000 in 2017. It has no permanent or temporary differences and its tax rate is 30%. If Violet Corporation carries back and forward the loss from 2018 to appropriate years, what is the necessary journal entry for 2018?

Kravitz Corporation had income before taxes of $900,000 and a tax rate of 25%. Included in the income are $70,000 in municipal bond interest and $10,000 in fines and penalties. There are no other book-tax differences. Refer to Kravitz Corporation. What is the net amount of Kravitz's book-tax difference?

Red Lantern Company experienced a net operating loss of $654,000 in 2018. The company reported taxable income of $543,000 in 2016 and $321,000 in 2017. The tax rate for all years is 35%. Assuming the company uses the carryback provisions for the net operating loss, prepare the following for the year of the loss: a) The necessary journal entry to record the NOL carryback. b) A partial income statement beginning with the net loss before benefit.

Sonic Speaker Co. took an aggressive tax position in its current year's tax return, claiming a $400,000 deduction. The company reported $750,000 in taxable income before considering the tax deduction, and is subject to a 28% income tax rate. Tax authorities have challenged this type of tax deduction in the past and Sonic Speaker Co. is now concerned about the realizability of this tax deduction in the future. However, management believes that it is more likely than not that the firm will sustain the tax benefits upon examination by tax authorities. The company provides the following analysis regarding the probabilities of sustaining the tax deduction: Possible estimated outcome Individual probability of occurring 400,000 7\% \ 385,000 23\% \ 300,000 30\% \ 175,000 25\% \ 89,000 15\% Refer to Sonic Speaker Company. What is the largest amount of tax benefit allowed?

Lyon Corp reported income from continuing operations before taxes of $774,000 and income from discontinued operations of $198,000. Lyon also reported $77,000 of unrealized gains from available-for-sale debt investments (fair value accounting adjustments) recorded as other comprehensive income. The company is subject to a 35% tax rate and reports no permanent differences. Prepare a partial income statement including comprehensive income.

The Wolf Group recorded a deferred tax asset of $60,000 due to a book-tax difference in warranty liabilities. Management has assessed that it is more likely than not that the firm will not realize 30% of the deferred tax asset. After recording the valuation allowance, Wolf's net income will ________ and assets will ________.

If the valuation allowance for a deferred tax asset is decreased, there is a(n) ________ to income tax expense, which is a(n) ________ to income tax benefit.

Identify and explain the steps in U.S. GAAP's approach to accounting for uncertain tax positions.

How does IFRS account for uncertain tax positions?

Ivy Group reported income from continuing operations before taxes of $648,000 and income from discontinued operations of $224,000. Ivy also reported $78,000 of unrealized gains from available-for-sale debt investments (fair value accounting adjustments) recorded as other comprehensive income. The company is subject to a 28% tax rate and reports no permanent differences. How much income tax expense does Ivy report as a line item directly below "Income from Continuing Operations before Taxes"?

In which of the following instances would a company most likely choose the carryforward option for a net operating loss?

Under IFRS, the balance sheet presentation for deferred taxes is to report them as either current or non-current.

Crystal Critters, Inc., a U.S. GAAP reporter, has the deferred tax assets and liabilities presented below: Item Classification on the Balance Sheet of Related Account Deferred Tax Associated with Item Excess of warranty expense over warranty deductions Current \ 74,000 Asset Accelerated depreciation for tax purposes Noncurrent \ 84,000 Liability nstallment sales receivable Current \ 44,000 Liability Contingent liability Current \ 34,000 Asset Assuming it meets the conditions to net assets and liabilities, how will the company report deferred taxes on the balance sheet?