Exam 17: Accounting for Income Taxes

Packard Corporation reported pretax book income of $500,000.Included in the computation were favorable temporary differences of $10,000,unfavorable temporary differences of $100,000,and unfavorable permanent differences of $80,000.The corporation's current income tax expense or benefit would be:

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account.This basis difference is characterized as:

Swordfish Corporation reported pretax book income of $1,000,000.During the current year,the net reserve for warranties increased by $25,000.In addition,book depreciation exceeded tax depreciation by $100,000.In prior years,tax depreciation exceeded book depreciation by a cumulative amount of $500,000.Finally,Swordfish subtracted a dividends received deduction of $15,000 in computing its current-year taxable income.Swordfish's deferred income tax expense or benefit would be:

Cardinal Corporation reported pretax book income of $3,000,000.During the current year,the reserve for bad debts increased by $200,000.In addition,book depreciation exceeded tax depreciation by $100,000.Cardinal sold a fixed asset and reported a book gain of $60,000 and a tax gain of $80,000.Finally,Cardinal deducted $50,000 of domestic production activities deduction on its tax return.Compute Cardinal's current income tax expense or benefit.

The focus of ASC 740 is on the income statement.

ASC 740 requires a publicly traded company to disclose the components of its deferred tax assets and liabilities only if the amounts are considered to be:

The Emerging Issues Task Force assists the FASB by providing guidance on the implementation of ASC 740 and other accounting pronouncements.

Which of the following statements is true?

Oriole Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $1,200,000.The unfavorable book-tax difference of $200,000 was due to a $200,000 favorable temporary difference relating to depreciation,an unfavorable temporary difference of $300,000 due to an increase in the reserve for bad debts,and a $100,000 unfavorable permanent difference from the disallowance of compensation expense related to the exercise of incentive stock options. a.Compute Oriole's current income tax expense. b.Compute Oriole's deferred income tax expense or benefit. c.Compute Oriole's effective tax rate. d.Provide a reconciliation of Oriole's effective tax rate with its hypothetical tax rate of 21 percent.

Abbot Corporation reported pretax book income of $500,000.During the current year,the reserve for bad debts increased by $5,000.In addition,tax depreciation exceeded book depreciation by $40,000.Finally,Abbot received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers.Abbot's current income tax expense or benefit would be:

Which of the following statements about uncertain tax position disclosures is false?

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

Irish Corporation reported pretax book income of $1,000,000.Included in the computation were favorable temporary differences of $300,000,unfavorable temporary differences of $100,000,and favorable permanent differences of $200,000.Compute Irish's book equivalent of taxable income.Use this number to compute the company's total income tax provision or benefit.

ASC 740 permits a corporation to net its deferred tax assets and deferred tax liabilities regardless of the jurisdiction in which they arise.

Weaver Company had a net deferred tax liability of $34,000 at the beginning of the year,representing a net taxable temporary difference of $100,000 (taxed at 34 percent).During the year,Weaver reported pretax book income of $400,000.Included in the computation were unfavorable temporary differences of $50,000 and favorable temporary differences of $20,000.At the beginning of the year,Congress reduced the corporate tax rate to 21 percent.Weaver's deferred income tax expense or benefit for the current year would be:

Which of the following statements best describes the disclosure of a company's deferred tax assets and liabilities?

Lynch Company had a net deferred tax asset of $68,000 at the beginning of the year,representing a net taxable temporary difference of $200,000 (taxed at 34 percent).During the year,Lynch reported pretax book income of $800,000.Included in the computation were favorable temporary differences of $20,000 and unfavorable temporary differences of $50,000.At the beginning of the year,Congress reduced the corporate tax rate to 21 percent.Lynch's deferred income tax expense or benefit for the current year would be:

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Manchester Corporation recorded the following deferred tax assets and liabilities: What will be the balances in the deferred tax asset and deferred tax liability accounts on Manchester Corporation's balance sheet?

Smith Company reported pretax book income of $400,000.Included in the computation were favorable temporary differences of $50,000,unfavorable temporary differences of $20,000,and favorable permanent differences of $40,000.Smith's deferred income tax expense or benefit would be: