Question 1

Which of the following items is not a temporary difference?

Accepted Answer

A) Vacation pay accrued for tax purposes in a prior period is deducted in the current period. 
B) Tax depreciation for the period exceeds book depreciation. 
C) A goodwill impairment expense is recorded on the income statement; the goodwill did not have a tax basis when it was created. 
D) Bad debts charged off in the current period exceed the bad debts accrued in the current period. 
A) Vacation pay accrued for tax purposes in a prior period is deducted in the current period. 
B) Tax depreciation for the period exceeds book depreciation. 
C) A goodwill impairment expense is recorded on the income statement; the goodwill did not have a tax basis when it was created. 
D) Bad debts charged off in the current period exceed the bad debts accrued in the current period.

Question 2

ASC 740 governs how a company accounts for all taxes it incurs.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following temporary differences creates a deferred tax liability?

Accepted Answer

A) Accumulated tax depreciation in excess of book depreciation on a building. 
B) Accumulated tax amortization in excess of book amortization on a customer list. 
C) Compensation expensed for book purposes but deferred for tax purposes. 
D) Both accumulated tax depreciation in excess of book depreciation on a building and accumulated tax amortization in excess of book amortization on a customer list create a deferred tax liability. 
A) Accumulated tax depreciation in excess of book depreciation on a building. 
B) Accumulated tax amortization in excess of book amortization on a customer list. 
C) Compensation expensed for book purposes but deferred for tax purposes. 
D) Both accumulated tax depreciation in excess of book depreciation on a building and accumulated tax amortization in excess of book amortization on a customer list create a deferred tax liability.

Question 4

Which of the following groups does not issue rules that apply to accounting for income taxes?

Accepted Answer

A) FASB. 
B) SEC. 
C) EITF. 
D) IRS. 
A) FASB. 
B) SEC. 
C) EITF. 
D) IRS.

Question 5

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 6

Potter,Inc.reported pretax book income of $5,000,000.During the current year,the reserve for bad debts increased by $100,000.In addition,tax depreciation exceeded book depreciation by $300,000.Potter sold a fixed asset and reported book gain of $60,000 and tax gain of $80,000.Finally,the company received $50,000 of tax-exempt municipal bond interest.Compute Potter's deferred income tax expense or benefit.

Accepted Answer

$37,800 deferred income tax ex

Question 7

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

Accepted Answer

A) True 
 B)False

Question 8

Sparrow Corporation reported pretax book income of $5,000,000.During the current year,the reserve for warranties increased by $300,000.In addition,tax depreciation exceeded book depreciation by $400,000.Finally,Sparrow received $50,000 of tax-exempt interest from municipal bonds.Compute Sparrow's current income tax expense or benefit.

Accepted Answer

$1,018,500

Question 9

Which of the following items is not a reconciling item in the income tax footnote?

Accepted Answer

A) Compensation deduction related to incentive stock options. 
B) Compensation deduction related to nonqualified stock options that were expensed for financial accounting purposes. 
C) Dividends received deduction. 
D) State and local income taxes. 
A) Compensation deduction related to incentive stock options. 
B) Compensation deduction related to nonqualified stock options that were expensed for financial accounting purposes. 
C) Dividends received deduction. 
D) State and local income taxes.

Question 10

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 11

A corporation's effective tax rate as computed in its income tax note is the company's cash tax rate for the year.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following best describes the focus of ASC 740?

Accepted Answer

A) ASC 740 uses an "asset and liability approach" that focuses on the balance sheet. 
B) ASC 740 uses an "income and expense approach" that focuses on the income statement. 
C) ASC 740 uses a "taxes paid or refunded approach" that focuses on the statement of cash flows. 
D) ASC 740 uses a "permanent differences approach" that focuses on the effective tax rate reported in the income tax note to the financial statements. 
A) ASC 740 uses an "asset and liability approach" that focuses on the balance sheet. 
B) ASC 740 uses an "income and expense approach" that focuses on the income statement. 
C) ASC 740 uses a "taxes paid or refunded approach" that focuses on the statement of cash flows. 
D) ASC 740 uses a "permanent differences approach" that focuses on the effective tax rate reported in the income tax note to the financial statements.

Question 13

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 14

Gull Corporation reported pretax book income of $2,000,000.Included in the computation were favorable temporary differences of $300,000,unfavorable temporary differences of $200,000,and favorable permanent differences of $50,000.Compute Gull's current income tax expense or benefit.

Accepted Answer

$388,500 c

Question 15

Bruin Company received a $100,000 insurance payment on the death of its company president.The company annually paid $1,000 of nondeductible insurance premiums on the policy.Bruin reported the insurance receipt as income and deducted the premium payments on its books.For ASC 740 purposes,the income and deduction are characterized as:

Accepted Answer

A) Both are taxable temporary differences. 
B) Both are deductible temporary differences. 
C) The insurance receipt is a favorable permanent difference and the premium payment is an unfavorable permanent difference. 
D) The insurance receipt is a taxable temporary difference and the premium payment is an unfavorable permanent difference. 
A) Both are taxable temporary differences. 
B) Both are deductible temporary differences. 
C) The insurance receipt is a favorable permanent difference and the premium payment is an unfavorable permanent difference. 
D) The insurance receipt is a taxable temporary difference and the premium payment is an unfavorable permanent difference.

Question 16

Which of the following statements is true?

Accepted Answer

A) In determining if a valuation allowance is needed,positive evidence is considered more persuasive than negative evidence. 
B) In determining if a valuation allowance is needed,negative evidence is considered more persuasive than positive evidence. 
C) In determining if a valuation allowance is needed,negative and positive evidence must be evaluated equally. 
D) In determining if a valuation allowance is needed,only negative evidence is evaluated. 
A) In determining if a valuation allowance is needed,positive evidence is considered more persuasive than negative evidence. 
B) In determining if a valuation allowance is needed,negative evidence is considered more persuasive than positive evidence. 
C) In determining if a valuation allowance is needed,negative and positive evidence must be evaluated equally. 
D) In determining if a valuation allowance is needed,only negative evidence is evaluated.

Question 17

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 18

Temporary differences that are cumulatively "favorable" are referred to as taxable temporary differences.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Identify the following items as creating a temporary difference,permanent difference,or no difference.

Accepted Answer

The answer of Identify the following items as creating a...

Exam 17: Accounting for Income Taxes

Which of the following items is not a temporary difference?

ASC 740 governs how a company accounts for all taxes it incurs.

Which of the following temporary differences creates a deferred tax liability?

Which of the following groups does not issue rules that apply to accounting for income taxes?

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

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

Which of the following items is not a reconciling item in the income tax footnote?

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

A corporation's effective tax rate as computed in its income tax note is the company's cash tax rate for the year.

Which of the following best describes the focus of ASC 740?

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

Gull Corporation reported pretax book income of $2,000,000.Included in the computation were favorable temporary differences of $300,000,unfavorable temporary differences of $200,000,and favorable permanent differences of $50,000.Compute Gull's current income tax expense or benefit.

Which of the following statements is true?

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

Temporary differences that are cumulatively "favorable" are referred to as taxable temporary differences.

Identify the following items as creating a temporary difference,permanent difference,or no difference.

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

Filters