Exam 19: Accounting for Income Taxes

A temporary difference arises when a revenue item is reported for tax purposes in a period

Define temporary differences, future taxable amounts, and future deductible amounts.

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?

Use the following information for questions 93 and 94. Operating income and tax rates for C.J. Company's first three years of operations were as follows: -Assuming that C.J. Company opts to carryback its 2015 NOL, what is the amount of income taxes payable at December 31, 2016?

Use the following information for questions 66 and 67. Mitchell Corporation prepared the following reconciliation for its first year of operations: The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2015 is 35%. -In Mitchell's 2015 income statement, what amount should be reported for total income tax expense?

Which of the following differences would result in future taxable amounts?

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. -The deferred tax liability to be recognized is

Use the following information for questions 89 and 90. Wilcox Corporation reported the following results for its first three years of operation: There were no permanent or temporary differences during these three years. Assume a corporate tax rate of 30% for 2014 and 2015, and 40% for 2016. -Assuming that Wilcox elects to use the carryback provision, what income (loss) is reported in 2015? (Assume that any deferred tax asset recognized is more likely than not to be realized.)

Assuming a 40% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet? I.A revenue is deferred for financial reporting purposes but not for tax purposes. II.A revenue is deferred for tax purposes but not for financial reporting purposes III.An expense is deferred for financial reporting purposes but not for tax purposes.IV. An expense is deferred for tax purposes but not for financial reporting purposes.

Alice, Inc. has the following deferred tax assets at December 31, 2014: What amount would Alice, Inc. report as a current deferred tax asset under IFRS and under U.S. GAAP?

When a change in the tax rate is enacted, the effect is reported as an adjustment to income tax payable in the period of the change.

Jerome Co. has the following deferred tax liabilities at December 31, 2014: What amount would Jerome Co. report as a noncurrent deferred tax liability under IFRS and under U.S. GAAP?

Wright Co., organized on January 2, 2014, had pretax accounting income of $640,000 and taxable income of $2,080,000 for the year ended December 31, 2014 The only temporary difference is accrued product warranty costs which are expected to be paid as follows: 2015 \ 480,000 2016 240,000 2017 240,000 2018 480,000 The enacted income tax rates are 35% for 2014, 30% for 2015 through 2017, and 25% for 2018. If Wright expects taxable income in future years, the deferred tax asset in Wright's December 31, 2014 balance sheet should be

Nickerson Corporation began operations in 2013. There have been no permanent or temporary differences to account for since the inception of the business. The following data are available: In 2015, Nickerson had an operating loss of $1,860,000. What amount of income tax benefits should be reported on the 2015 income statement due to this loss assuming that it uses the carryback provision?

Tanner, Inc. incurred a financial and taxable loss for 2015. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2015 financial statements?

In 2014, its first year of operations, Kimble Corp. has a $800,000 net operating loss when the tax rate is 30%. In 2015, Kimble has $350,000 taxable income and the tax rate remains 30%. InstructionsAssume the management of Kimble Corp. thinks that it is more likely than not that the loss carryforward will not be realized in the near future because it is a new company (this is before results of 2015 operations are known). (a) What are the entries in 2014 to record the tax effects of the loss carryforward? (b) What entries would be made in 2015 to record the current and deferred income taxes and to recognize the loss carryforward? (Assume that at the end of 2013 it is more likely than not that the deferred tax asset will be realized.)

Use the following information for questions 52 and 53. At the beginning of 2015, Pitman Co. purchased an asset for $1,200,000 with an estimated useful life of 5 years and an estimated salvage value of $100,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2015 and all future years. -At the end of 2015, which of the following deferred tax accounts and balances is reported on Pitman's balance sheet?

A deferred tax asset represents the increase in taxes refundable in future years as a result of deductible temporary differences existing at the end of the current year.

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?

Dunn, Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Installment income of $1,800,000 will be collected in the following years when the enacted tax rates are: The installment income is Dunn's only temporary difference. What amount should be included in the deferred income tax liability in Dunn's December 31, 2015 balance sheet?