Question 1

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following items is not considered evidence in determining if a valuation allowance is necessary?

Accepted Answer

A) A cumulative book loss over some period of time. 
B) Management projects future taxable income based on a backlog of signed contracts. 
C) A net operating loss expired unused in the current year. 
D) Management can implement a tax strategy to create future taxable income,but it will be detrimental to the future profitability of the company. 
A) A cumulative book loss over some period of time. 
B) Management projects future taxable income based on a backlog of signed contracts. 
C) A net operating loss expired unused in the current year. 
D) Management can implement a tax strategy to create future taxable income,but it will be detrimental to the future profitability of the company.

Question 3

What confidence level must management have that a tax position will be sustained on audit before it can recognize any portion of the related deferred tax asset under ASC 740?

Accepted Answer

A) More likely than not. 
B) Reasonable basis. 
C) Substantial authority. 
D) Probable. 
A) More likely than not. 
B) Reasonable basis. 
C) Substantial authority. 
D) Probable.

Question 4

A cumulative financial accounting (book)loss over three years (36 consecutive months)likely would be considered significant negative evidence in a valuation allowance analysis.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

Accepted Answer

A) A publicly traded company should disclose the approximate "tax effect" (dollar amounts)of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
B) A publicly traded company should disclose the approximate "tax effect" (dollar amounts)of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements. 
C) A privately held company should disclose the approximate "tax effect" (dollar amounts)of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
D) A privately held company should disclose the approximate "tax effect" (dollar amounts)of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements. 
A) A publicly traded company should disclose the approximate "tax effect" (dollar amounts)of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
B) A publicly traded company should disclose the approximate "tax effect" (dollar amounts)of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements. 
C) A privately held company should disclose the approximate "tax effect" (dollar amounts)of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
D) A privately held company should disclose the approximate "tax effect" (dollar amounts)of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements.

Question 6

Which of the following items is not a permanent book-tax difference?

Accepted Answer

A) Tax-exempt life insurance proceeds. 
B) Nondeductible meals expense. 
C) Accrued vacation pay liability not paid within the first two and a half months of the next tax year. 
D) Excess tax benefits from the exercise of NQOs. 
A) Tax-exempt life insurance proceeds. 
B) Nondeductible meals expense. 
C) Accrued vacation pay liability not paid within the first two and a half months of the next tax year. 
D) Excess tax benefits from the exercise of NQOs.

Question 7

Frost Corporation reported pretax book income of $3,000,000.Included in the computation were favorable temporary differences of $200,000,unfavorable temporary differences of $350,000,and unfavorable permanent differences of $50,000.Compute Frost's deferred income tax expense or benefit.

Accepted Answer

$31,500 deferred income tax be

Question 8

The "current income tax expense or benefit" always represents just the taxes paid or refunded in the current year.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Jones 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.Book equivalent of taxable income is:

Accepted Answer

A) $440,000. 
B) $400,000. 
C) $360,000. 
D) $330,000. 
A) $440,000. 
B) $400,000. 
C) $360,000. 
D) $330,000.

Question 11

Tax-exempt interest from municipal bonds is an example of a permanent book-tax difference.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Milton Corporation reported pretax book income of $2,500,000.Included in the computation were favorable temporary differences of $400,000,unfavorable temporary differences of $150,000,and favorable permanent differences of $100,000.Compute Milton's deferred income tax expense or benefit.

Accepted Answer

$52,500 deferred income tax ex

Question 14

Which of the following items does not result in a permanent difference?

Accepted Answer

A) Accelerated tax depreciation in excess of straight-line book depreciation. 
B) Interest income from a tax-exempt municipal bond. 
C) Dividends received deduction on the income tax return. 
D) Excess tax benefits from the exercise of an NQO. 
A) Accelerated tax depreciation in excess of straight-line book depreciation. 
B) Interest income from a tax-exempt municipal bond. 
C) Dividends received deduction on the income tax return. 
D) Excess tax benefits from the exercise of an NQO.

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

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 17

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.

Question 18

MAC,Inc.,completed its first year of operations with a pretax loss of $300,000.The tax return showed a net operating loss of $500,000.The $200,000 book-tax difference results from excess tax depreciation over book depreciation.Management has determined that they should record a valuation allowance equal to the net deferred tax asset.Prepare the journal entries to record the deferred tax provision and the valuation allowance.

Accepted Answer

The deferred tax liability rel

Question 19

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 20

Yellow Rose Corporation reported pretax book income of $100,000,000.Tax depreciation exceeded book depreciation by $100,000.During the year Yellow Rose capitalized $50,000 into ending inventory under §263A.Capitalized inventory costs of $75,000 in beginning inventory were deducted as part of cost of goods sold on the tax return.Compute Yellow Rose's taxes payable or refundable.

Accepted Answer

$20,973,75

Exam 17: Accounting for Income Taxes

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.

Which of the following items is not considered evidence in determining if a valuation allowance is necessary?

What confidence level must management have that a tax position will be sustained on audit before it can recognize any portion of the related deferred tax asset under ASC 740?

A cumulative financial accounting (book)loss over three years (36 consecutive months)likely would be considered significant negative evidence in a valuation allowance analysis.

Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

Which of the following items is not a permanent book-tax difference?

Frost Corporation reported pretax book income of $3,000,000.Included in the computation were favorable temporary differences of $200,000,unfavorable temporary differences of $350,000,and unfavorable permanent differences of $50,000.Compute Frost's deferred income tax expense or benefit.

The "current income tax expense or benefit" always represents just the taxes paid or refunded in the current year.

Jones 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.Book equivalent of taxable income is:

Tax-exempt interest from municipal bonds is an example of a permanent book-tax difference.

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.

Milton Corporation reported pretax book income of $2,500,000.Included in the computation were favorable temporary differences of $400,000,unfavorable temporary differences of $150,000,and favorable permanent differences of $100,000.Compute Milton's deferred income tax expense or benefit.

Which of the following items does not result in a permanent difference?

Which of the following statements is true?

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

Which of the following statements is true?

An Introduction to Tax

Tax Compliance,the Irs,and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview,dependents,and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

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 Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

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