Exam 17: Accounting for Income Taxes

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

Uncertain tax positions may result in a ________.

Under U.S. GAAP, companies generally use a cash flow approach to account for temporary differences between book and tax treatment of transactions.

Greene Co. reported a loss in 2018 of $595,000 and carried the loss back is allowed. The company reported taxable income of $183,000 in 2016 and $200,000 in 2017. It has no permanent or temporary differences and its tax rate is 40%. Greene reported taxable income of $287,000 in 2019. Prepare the necessary journal entries for 2018 and 2019.

Media Corporation incurred $25,000 in expenses associated with tax-exempt income this year. What (if any) book-tax difference will result?

Greenville Industries uses the accrual basis to account for all sales transactions. Sales for 2018 total $560,000. Included in this amount is $25,000 in receivables from sales on installment. Installment sales are considered revenue for book purposes, but not for tax purposes. Operating expenses total $120,000 and are treated the same for book and tax purposes. What is Greenville's tax basis in the installment sale receivable?

List the four possible sources of taxable income that a company should consider when assessing the realizability of a deferred tax asset under U. S. GAAP.

A deferred tax asset exists when ________.

Red Lantern Corp. reported a net deferred tax asset balance of $247,000 resulting from an estimated warranty expense accrual for book purposes. The enacted statutory tax rate related to this balance changed from 38% to 32%, effective immediately. Prepare the necessary journal entry to account for this change in tax rates if Red Lantern is an IFRS reporter.

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 $675,000 Warranty expense and associated liability in the amount of $135,000 No other expenses incurred. 2019 information: Sales on account in the amount of $215,000 Warranty repairs made in the amount of $60,000 No expenses incurred. What is MK's income tax payable for 2018?

U.S. GAAP requires companies to reconcile the federal statutory income tax rate to the effective tax rate.

Temporary differences between the book and tax treatment of transactions create deferred tax assets or deferred tax liabilities.

The following information applies to the operations of MK Inc. for 2018 and 2019. Assume a tax rate of 30% for both years. 2018 information: Sales on account in the amount of $700,000 Warranty expense and associated liability in the amount of $130,000 No other expenses incurred. 2019 information: Sales on account in the amount of $230,000 Warranty repairs made in the amount of $61,000 No expenses incurred. What is the amount of MK's deferred tax asset or deferred tax liability for 2018?

TLR Productions reported income before taxes of $205,000 for the years 2016, 2017, and 2018. In 2019 they experienced a loss of $500,000. TLR had a tax rate of 35% in 2016 and 2017, and a rate of 45% in 2018 and 2019. Assuming the company uses the carryback provisions for the net operating loss, what amount should be reported as Income Tax Refund Receivable in 2019?

In 2018, its first year of operations, Moulin & Company experienced a $326,000 net operating loss and recorded a deferred tax asset of $117,360. Moulin decides that it is more likely than not that it will only be able to generate $250,000 of taxable income during the carryforward period. As a result, without generating additional future taxable income it will not be able to fully realize the NOL carryforward benefit. Prepare the necessary journal entries to record the net deferred tax asset in 2018.

Big Bear Sporting Goods opened in 2018. They reported sales revenue of $375,000 and expenses of $460,000. There are no permanent or temporary differences, so the book loss and taxable loss will be the same. Big Bear plans on carrying forward the net operating loss (NOL). Assuming a 32% tax rate, what is the necessary journal entry in 2018 to record the NOL carryforward?

Sonic Speaker Co. took an aggressive tax position in its current year's tax return, claiming a $500,000 deduction. The company reported $950,000 in taxable income before considering the tax deduction, and is subject to a 38% 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 \ 500,000 7\% \ 385,000 23\% \ 290,000 30\% \ 155,000 25\% \ 109,000 15\% Refer to Sonic Speaker Company. What is the journal entry to record the current year's tax provision and the liability for the uncertain tax provision?

Greene Co. has pretax book income for the year ended December 31, 2018 in the amount of $315,000 and has a tax rate of 30%. Depreciation for tax purposes exceeded book depreciation by $10,500. What should Greene Co. record as its deferred tax liability for 2018?

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

Blue Company's income before taxes is $410,000 and its tax rate is 40%. Blue included $50,000 of fines and penalties in the $410,000. There are no other book-tax differences. What is the effective tax rate for Blue Company? (Do not round intermediate calculations. Only round your final answer to the nearest percent.)