Question 1

A valuation allowance is recorded against a deferred tax asset when:

Accepted Answer

A)  It is probable that the deferred tax asset will not be realized in the future. 
B)  It is more likely than not that the deferred tax asset will not be realized in the future. 
C)  It is highly likely the deferred tax asset will not be realized in the future. 
D)  It is only remotely possible that the deferred tax asset will not be realized in the future. 
A)  It is probable that the deferred tax asset will not be realized in the future. 
B)  It is more likely than not that the deferred tax asset will not be realized in the future. 
C)  It is highly likely the deferred tax asset will not be realized in the future. 
D)  It is only remotely possible that the deferred tax asset will not be realized in the future.

Question 2

ASC 740 applies to accounting for state, local, and international income taxes as well as federal income taxes.

Accepted Answer

A) True 
 B)False

Question 3

Once determined, an unrecognized tax benefit under ASC 740 is not readjusted for subsequent events.

Accepted Answer

A) True 
 B)False

Question 4

Congress reduced the corporate tax rate from 35 percent to 21 percent effective in 2018. The tax rate change will affect only deferred tax assets and liabilities that arise in 2018 and thereafter.

Accepted Answer

A) True 
 B)False

Question 5

Entities classify all deferred tax assets and liabilities as noncurrent on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 6

TarHeel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $100,000. In addition, tax depreciation exceeded book depreciation by $200,000. Finally, TarHeel subtracted a dividends received deduction of $50,000 in computing its current-year taxable income. TarHeel's accounting effective tax rate is:

Accepted Answer

A)  21 percent. 
B)  19.95 percent. 
C)  18.9 percent. 
D)  17.85 percent. 
A)  21 percent. 
B)  19.95 percent. 
C)  18.9 percent. 
D)  17.85 percent.

Question 7

Brown Corporation reports $100,000 of gain from the sale of land on its income statement. For tax purposes, Brown uses the installment method and reports gain of $10,000. The $90,000 difference in the gain reported is a deductible temporary difference.

Accepted Answer

A) True 
 B)False

Question 8

Morgan Corporation determined that $2,000,000 of the research credit on its current-year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made the following assessment of the company's potential tax benefit from the credit and its probability of occurring.
   Under ASC 740, what amount of the tax benefit related to the research credit can Morgan recognize in calculating its income tax provision in the current year?

Accepted Answer

$1,500,000.
The amou

Question 9

Knollcrest Corporation has a cumulative book loss over the past 36 months. Which of the following statements best describes how this fact enters into the valuation allowance analysis?

Accepted Answer

A)  The book loss is considered sufficient negative evidence that a valuation must be recorded. 
B)  The book loss is considered negative evidence that must be evaluated along with other evidence as to whether a valuation allowance should be recorded. 
C)  The book loss is not considered negative evidence because it relates to book income and not taxable income. 
D)  A cumulative book loss is considered negative evidence only after a period of 60 months. 
A)  The book loss is considered sufficient negative evidence that a valuation must be recorded. 
B)  The book loss is considered negative evidence that must be evaluated along with other evidence as to whether a valuation allowance should be recorded. 
C)  The book loss is not considered negative evidence because it relates to book income and not taxable income. 
D)  A cumulative book loss is considered negative evidence only after a period of 60 months.

Question 10

Green Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $50,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Green subtracted a dividends received deduction of $25,000 in computing its current-year taxable income. Green's cash tax rate is:

Accepted Answer

A)  21 percent. 
B)  20.475 percent. 
C)  19.95 percent. 
D)  19.425 percent. 
A)  21 percent. 
B)  20.475 percent. 
C)  19.95 percent. 
D)  19.425 percent.

Question 11

Which of the following statements best describes "book equivalent of taxable income" (BETI)?

Accepted Answer

A)  BETI is book income adjusted for all permanent and temporary differences. 
B)  BETI is book income adjusted for all temporary differences. 
C)  BETI is book income adjusted for all permanent differences. 
D)  BETI is book income before adjustment for all permanent and temporary differences. 
A)  BETI is book income adjusted for all permanent and temporary differences. 
B)  BETI is book income adjusted for all temporary differences. 
C)  BETI is book income adjusted for all permanent differences. 
D)  BETI is book income before adjustment for all permanent and temporary differences.

Question 12

Weber Corporation reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $300,000, and unfavorable permanent differences of $200,000. Compute the company's book equivalent of taxable income. Use this number to compute the company's total income tax provision or benefit.

Accepted Answer

BETI of $600,000 and a total i

Question 13

Farm Corporation reported pretax book loss of $500,000. Tax depreciation exceeded book depreciation by $100,000. In addition, Farm received prepaid income of $50,000, which was included on its tax return but was not included in the book loss. Compute the company's income tax expense or benefit.

Accepted Answer

$105,000 net tax benefit. The components

Question 14

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

Accepted Answer

A)  ASC 740 requires a company to complete a two-step analysis every time it evaluates its uncertain tax positions. 
B)  ASC 740 requires a company to complete Step 2 (measurement) in its evaluation of its uncertain tax positions only if it is more likely than not that its tax position will be sustained on its merits (recognition). 
C)  ASC 740 allows a company to take into account the probability of audit by a tax authority in Step 1 (measurement) in its evaluation of its uncertain tax positions. 
D)  ASC 740 allows a company to record a tax benefit from an uncertain tax position only if it is probable the benefit will be sustained on audit by a tax authority. 
A)  ASC 740 requires a company to complete a two-step analysis every time it evaluates its uncertain tax positions. 
B)  ASC 740 requires a company to complete Step 2 (measurement) in its evaluation of its uncertain tax positions only if it is more likely than not that its tax position will be sustained on its merits (recognition). 
C)  ASC 740 allows a company to take into account the probability of audit by a tax authority in Step 1 (measurement) in its evaluation of its uncertain tax positions. 
D)  ASC 740 allows a company to record a tax benefit from an uncertain tax position only if it is probable the benefit will be sustained on audit by a tax authority.

Question 15

Which of the following statements is true?

Accepted Answer

A)  A change in capitalized inventory costs under §263A always produces an increase in a deferred tax asset. 
B)  A change in capitalized inventory costs under §263A always produces a decrease in a deferred tax asset. 
C)  A change in capitalized inventory costs under §263A can produce an increase or a decrease in a deferred tax asset. 
D)  A change in capitalized inventory costs under §263A always produces a permanent difference. 
A)  A change in capitalized inventory costs under §263A always produces an increase in a deferred tax asset. 
B)  A change in capitalized inventory costs under §263A always produces a decrease in a deferred tax asset. 
C)  A change in capitalized inventory costs under §263A can produce an increase or a decrease in a deferred tax asset. 
D)  A change in capitalized inventory costs under §263A always produces a permanent difference.

Question 16

Publicly traded companies usually file their financial statements before they file their federal income tax returns.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following book-tax basis differences results in a deductible temporary difference?

Accepted Answer

A)  Book basis of an employee's postretirement benefits liability exceeds its tax basis. 
B)  Book basis of a building exceeds the tax basis of the building. 
C)  Book basis of an acquired intangible exceeds the tax basis of the intangible. 
D)  Tax basis of a prepaid liability exceeds the book basis of the liability. 
A)  Book basis of an employee's postretirement benefits liability exceeds its tax basis. 
B)  Book basis of a building exceeds the tax basis of the building. 
C)  Book basis of an acquired intangible exceeds the tax basis of the intangible. 
D)  Tax basis of a prepaid liability exceeds the book basis of the liability.

Question 18

Which of the following statements is true?

Accepted Answer

A)  ASC 740 focuses on the income tax expense or benefit on the income statement. 
B)  ASC 740 focuses on the balances in the deferred tax assets and liabilities on the balance sheet. 
C)  ASC 740 focuses on the income taxes paid or refunded in the statement of cash flows. 
D)  ASC 740 focuses on the computation of a company's effective tax rate in the income tax note to the financial statements. 
A)  ASC 740 focuses on the income tax expense or benefit on the income statement. 
B)  ASC 740 focuses on the balances in the deferred tax assets and liabilities on the balance sheet. 
C)  ASC 740 focuses on the income taxes paid or refunded in the statement of cash flows. 
D)  ASC 740 focuses on the computation of a company's effective tax rate in the income tax note to the financial statements.

Question 19

Which of the following statements is true with respect to a company's effective tax rate reconciliation?

Accepted Answer

A)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate were applied to the company's net income from continuing operations. 
B)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate were applied to the company's taxable income. 
C)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate were applied to the company's book equivalent of taxable income. 
D)  The hypothetical tax expense is another name for the company's effective tax rate. 
A)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate were applied to the company's net income from continuing operations. 
B)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate were applied to the company's taxable income. 
C)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate were applied to the company's book equivalent of taxable income. 
D)  The hypothetical tax expense is another name for the company's effective tax rate.

Question 20

Which of the following statements best describes the objective(s) of ASC 740?

Accepted Answer

A)  To compute a corporation's current income tax liability or benefit. 
B)  To recognize deferred tax liabilities and assets. 
C)  To report permanent differences in the balance sheet. 
D)  To both compute a corporation's current income tax liability or benefit and to recognize deferred tax liabilities and assets. 
A)  To compute a corporation's current income tax liability or benefit. 
B)  To recognize deferred tax liabilities and assets. 
C)  To report permanent differences in the balance sheet. 
D)  To both compute a corporation's current income tax liability or benefit and to recognize deferred tax liabilities and assets.

A valuation allowance is recorded against a deferred tax asset when:

ASC 740 applies to accounting for state, local, and international income taxes as well as federal income taxes.

Once determined, an unrecognized tax benefit under ASC 740 is not readjusted for subsequent events.

Congress reduced the corporate tax rate from 35 percent to 21 percent effective in 2018. The tax rate change will affect only deferred tax assets and liabilities that arise in 2018 and thereafter.

Entities classify all deferred tax assets and liabilities as noncurrent on the balance sheet.

Brown Corporation reports $100,000 of gain from the sale of land on its income statement. For tax purposes, Brown uses the installment method and reports gain of $10,000. The $90,000 difference in the gain reported is a deductible temporary difference.

Knollcrest Corporation has a cumulative book loss over the past 36 months. Which of the following statements best describes how this fact enters into the valuation allowance analysis?

Which of the following statements best describes "book equivalent of taxable income" (BETI)?

Farm Corporation reported pretax book loss of $500,000. Tax depreciation exceeded book depreciation by $100,000. In addition, Farm received prepaid income of $50,000, which was included on its tax return but was not included in the book loss. Compute the company's income tax expense or benefit.

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

Which of the following statements is true?

Publicly traded companies usually file their financial statements before they file their federal income tax returns.

Which of the following book-tax basis differences results in a deductible temporary difference?

Which of the following statements is true?

Which of the following statements is true with respect to a company's effective tax rate reconciliation?

Which of the following statements best describes the objective(s) of ASC 740?

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 6: Accounting for Income Taxes

A valuation allowance is recorded against a deferred tax asset when:

ASC 740 applies to accounting for state, local, and international income taxes as well as federal income taxes.

Once determined, an unrecognized tax benefit under ASC 740 is not readjusted for subsequent events.

Congress reduced the corporate tax rate from 35 percent to 21 percent effective in 2018. The tax rate change will affect only deferred tax assets and liabilities that arise in 2018 and thereafter.

Entities classify all deferred tax assets and liabilities as noncurrent on the balance sheet.

Brown Corporation reports $100,000 of gain from the sale of land on its income statement. For tax purposes, Brown uses the installment method and reports gain of $10,000. The $90,000 difference in the gain reported is a deductible temporary difference.

Knollcrest Corporation has a cumulative book loss over the past 36 months. Which of the following statements best describes how this fact enters into the valuation allowance analysis?

Which of the following statements best describes "book equivalent of taxable income" (BETI)?

Farm Corporation reported pretax book loss of $500,000. Tax depreciation exceeded book depreciation by $100,000. In addition, Farm received prepaid income of $50,000, which was included on its tax return but was not included in the book loss. Compute the company's income tax expense or benefit.

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

Which of the following statements is true?

Publicly traded companies usually file their financial statements before they file their federal income tax returns.

Which of the following book-tax basis differences results in a deductible temporary difference?

Which of the following statements is true?

Which of the following statements is true with respect to a company's effective tax rate reconciliation?

Which of the following statements best describes the objective(s) of ASC 740?

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters