Exam 17: Accounting for Income Taxes

Lyon Group's income before taxes is $420,000 and its tax rate is 40%. Lyon included $30,000 in fines and penalties in the $420,000. There are no other book-tax differences. What is income tax payable for Lyon Group?

S & C Company reported income before taxes of $91,000 for the years 2016, 2017, and 2018. In 2019 they experienced a loss of $182,000. S & C had a tax rate of 30% in 2016 and 2017, and a rate of 40% is 2018 and 2019. The company elects to carry back the loss. What is the necessary journal entry to record the NOL carryback in the year of the loss?

Cougar, Inc., an IFRS reporter, estimates a deferred tax asset of $80,000 due to a book-tax difference in warranty liabilities. Management has assessed that it is probable that the firm will not realize 20% of the deferred tax asset. After recording the net deferred tax asset, Cougar's net income will ________ and assets will ________.

Clunker Car Corporation reported a $3 million contingent liability on its 2018 financial statements from a lawsuit over faulty ignition switches. The tax rate for 2018 is 40% However the enacted tax rates for the following three years are 37%, 35%, and 33% respectively. How will the deferred tax asset be measured if the case is expected to be resolved in 2019? How will it be measured if the case is expected to be resolved in 2021? What accounts for this difference?

Tommy Corp. reported a net deferred tax asset balance of $176,400 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 $490,000. The enacted statutory tax rate related to this balance changed from 36% to 31%, effective immediately. By what amount will the deferred asset balance change?

Which of the following statements best describes the effective tax rate?

The amount of income a company reports in its financial statements is known as ________.

Greene Co. has book income of $425,000, and a tax rate of 30%. Assuming there are no book-tax differences, what will the journal entry be to record the income tax expense?

All of the following are examples of situations that may create temporary book-tax differences except ________.

Netting deferred tax assets and liabilities is permitted as long as the right to offset exists.

S & C Inc.'s income tax payable is $290,000 and its tax rate is 30%. Assuming no book-tax differences, what is S & C's net income? (Round your answer to the nearest whole dollar.)

Tom-Kat Inc.'s income before taxes is $360,000 and its tax rate is 30%. Tom-Kat included $60,000 of interest from municipal bonds in the $360,000. There are no other book-tax differences. What is the journal entry to record income tax expense?

Violet Corporation reported a loss in 2018 of $610,000 and carried back the loss to the extent allowed. The company reported taxable income of $215,000 in 2016 and $245,000 in 2017. It has no permanent or temporary differences and its tax rate is 30%. Violet reported taxable income of $345,000 in 2019. What is the necessary journal entry for 2019?

In 2017, Squirrel Corp. recorded book income of $165,000. It has one temporary difference which relates to a $30,000 warranty expense that it recorded for book purposes, and no permanent differences. Squirrel anticipates satisfying this liability equally over the following two years. The current enacted tax rate is 36%. The enacted tax rates for the following years are 2017: 26%, 2018: 31%, 2019: 26% and 2020: 36%, respectively. Under U.S. GAAP, what deferred tax amount should Squirrel Corp. record for this temporary difference?

Companies are required to disclose the amount of income tax expense that is ________.

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

Discuss the relationship between temporary differences, and the statutory and effective tax rates.

Explain the conflicting incentives that relate to reporting of taxes. What might the related strategies signal to investors?

In 2018, the MoosePants Corporation reported income from continuing operations before taxes of $865,500 and income from discontinued operations of $213,000. MoosePants also reported $82,000 of unrealized gains from available-for-sale debt investments (fair value accounting adjustments) recorded as other comprehensive income. The company is subject to a 34% tax rate and reports no permanent differences. Prepare a partial income statement including comprehensive income.

Temporary differences cause the effective income tax rate to vary from the statutory rate.