Exam 17: Accounting for Income Taxes

Kravitz Corporation had income before taxes of $900,000 and a tax rate of 45%. Included in the income are $80,000 in municipal bond interest and $10,000 in fines and penalties. There are no other book-tax differences. Refer to Kravitz Corporation. What is Kravitz's taxable income?

Greene Co. has pretax book income for the year ended December 31, 2018 in the amount of $285,000 and has a tax rate of 40%. Depreciation for tax purposes exceeded book depreciation by $13,500. What should Greene Co. record as its federal income tax liability for 2018?

What purpose does a carryback or carryforward serve to a company with a volatile earnings stream?

The adjustment for a change in tax rates is treated as a change in accounting estimate.

Taxable income refers to the amount of income reported on a company's tax return.

Accounting for uncertain tax positions under U.S. GAAP involves a two-step approach: ________.

________ differences between book income and taxable income result in an effective tax rate that differs from the statutory tax rate.

Piper, Inc. reported a net deferred tax asset balance of $166,650 resulting from an estimated warranty expense accrual for book purposes. The total book-tax difference related to the bases of the estimated warranty liability is $505,000. The enacted statutory tax rate related to this balance changed from 33% to 28%, effective immediately. What journal entry will Piper need to make to adjust for this change in tax rates?

Kravitz Corporation had income before taxes of $890,000 and a tax rate of 45%. Included in the income are $40,000 in municipal bond interest and $20,000 in fines and penalties. There are no other book-tax differences. Refer to Kravitz Corporation. What is Kravitz's effective income tax rate? (Do not round intermediate calculations. Only round your final answer to the nearest tenth percent.)

When a company adjusts the balance of a deferred tax account to reflect changes in their tax rate, this impacts ________.

Olympics Inc. recorded a dividends received deduction on their tax return this year. What (if any) book-tax difference will result?

Betta Group's net income is $400,000 and its tax rate is 25%. Assuming no book-tax differences, what is Betta's taxes payable? (Round your answer to the nearest whole dollar.)

Dante Inc. reported fines and penalties on their income statement this year. What (if any) book-tax difference will result?

Infinity Production acquired a new machine at the beginning of the current year. The machine cost $780,000 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 25% income tax rate and has no other book-tax differences. Income before depreciation and tax is presented below: Income before Taxand Year Depreciation 1 \ 390,000 2 440,000 3 510,000 4 700,000 5 820,000 6 950,000 What is Infinity's income tax payable for year 1?

Greenville Industries uses the accrual basis to account for all sales transactions. Sales for 2018 total $500,000. Included in this amount is $85,000 in receivables from sales on installment. Installment sales are considered revenue for book purposes, but not for tax purposes. Operating expenses total $170,000 and are treated the same for book and tax purposes. Assuming a 40% tax rate, what is Greenville's income tax expense?

When a company depreciates a fixed asset at a faster rate for tax purposes than book purposes, this creates a ________.

The effective tax rate is the legally imposed rate in a given taxing jurisdiction.

When a company carries forward a net operating loss (NOL), the income tax expense will be reduced in future years, but not income tax payable.

The contra-asset to the Deferred Tax Asset account is called ________.

On December 31, 2018, Big Bear Corporation reports liabilities with a tax basis of $1,200,000 and a book basis of $1,700,000. There was no difference in the asset basis. The difference in liability basis arose from temporary differences that would reverse in the following years: 2019 \ 120,000 2020 \ 110,000 2021 \ 112,000 2022 \ 80,000 2023 \ 78,000 Assuming a tax rate of 40% for 2018 - 2021 and a rate of 45% for 2022 - 2023, what should Big Bear report on its balance sheet on December 31, 2018?