Exam 19: Accounting for Income Taxes

Use the following information for questions 76-78. At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a deferred tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: -What is Elephant, Inc.'s taxable income for 2015?

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if

Uncertain tax positions I.Are positions for which the tax authorities may disallow a deduction in whole orin part. II.Include instances in which the tax law is clear and in which the company believesan audit is likely III.Give rise to tax expense by increasing payables or increasing a deferredtax liability.

Which of the following will not result in a temporary difference?

An individual deferred tax asset or liability is classified as current or noncurrent based on the classification of the related asset/liability for financial reporting purposes.

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in

Major reasons for disclosure of deferred income tax information is (are)

Listed below are items that are treated differently for accounting purposes than they are for tax purposes. Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they will create deferred tax assets or deferred tax liabilities.1. Investments accounted for by the equity method.2. Advance rental receipts.3. Fine for polluting.4. Estimated future warranty costs.5. Excess of contributions over pension expense.6. Expenses incurred in obtaining tax-exempt revenue.7. Installment sales.8. Excess tax depreciation over accounting depreciation.9. Long-term construction contracts.10. Premiums paid on life insurance of officers (company is the beneficiary).

Under IFRS, a deferred tax liability is classified as current or noncurrent based on the classification of the asset or liability to which it relates.

Use the following information for questions 58 through 60. Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each of the next three years. The income tax rate is 30% for all years. -Income taxes payable is

Companies should classify the balances in the deferred tax accounts on the balance sheet as noncurrent assets and noncurrent liabilities.

Taxable income is a tax accounting term and is also referred to as income before taxes.

Haag Corp.'s 2015 income statement showed pretax accounting income of $1,500,000. To compute the federal income tax liability, the following 2015 data are provided: What amount of current federal income tax liability should be included in Hagg's December 31, 2015 balance sheet?

Ewing Company sells household furniture. Customers who purchase furniture on the installment basis make payments in equal monthly installments over a two-year period, with no down payment required. Ewing's gross profit on installment sales equals 40% of the selling price of the furniture.For financial accounting purposes, sales revenue is recognized at the time the sale is made. For income tax purposes, however, the installment method is used. There are no other book and income tax accounting differences, and Ewing's income tax rate is 30%.If Ewing's December 31, 2015, balance sheet includes a deferred tax liability of $600,000 arising from the difference between book and tax treatment of the installment sales, it should also include installment accounts receivable of

Taxable income of a corporation

26. At the December 31, 2014 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2015, a future taxable amount will occur and

Fleming Company has the following cumulative taxable temporary differences: The tax rate enacted for 2015 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2015 is $3,200,000 and there are no permanent differences. Fleming's pretax financial income for 2015 is:

A company uses the equity method to account for an investment for financial reporting purposes. This would result in what type of difference and in what type of deferred income tax?

Deferred tax amounts that are related to specific assets or liabilities should be classified as current or noncurrent based on

Based on the following information, compute 2015 taxable income for South Co. assuming that its pre-tax accounting income for the year ended December 31, 2015 is $345,000.