Exam 17: Accounting for Income Taxes

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 $650,000 Warranty expense and associated liability in the amount of $105,000 No other expenses incurred. 2019 information: Sales on account in the amount of $225,000 Warranty repairs made in the amount of $68,000 No expenses incurred. What is MK's taxable income for 2018?

Infinity Production acquired a new machine at the beginning of the current year. The machine cost $600,000 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 \ 430,000 2 480,000 3 550,000 4 700,000 5 820,000 6 950,000 What is the increase or decrease in the deferred tax liability for year 3?

S & C Company reported $220,000 depreciation on its 2018 tax return. However, they reported $40,000 depreciation expense on their 2018 income statement. The difference in depreciation is a temporary difference that will reverse over time. Assuming S & C's tax rate is constant at 20%, what amount should be added to the deferred income tax liability in S & C's December 31, 2018, balance sheet?

In 2018 Charmed, Inc. recorded book income of $390,000. The company's only temporary difference relates to a $66,000 installment sale that it recorded for book purposes; there are no permanent differences. Charmed anticipates receiving payments equally over the following three years. The current enacted tax rate in 2018 is 40%. The substantively enacted tax rates for the following three years are 35%, 40%, and 48%, respectively. Under U.S. GAAP, what deferred tax amount should Charmed record for this temporary difference?

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

Accounting for uncertain tax positions under IFRS involves all of the following except ________.