Exam 17: Accounting for Income Taxes

Potential interest and penalties that would be assessed on a disallowed unrecognized tax benefit must be recorded in a company's income tax expense under ASC 740.

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

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

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

Purple Rose Corporation reported pretax book income of $500,000. Tax depreciation exceeded book depreciation by $300,000. In addition, the company received $250,000 of tax-exempt lifeinsurance proceeds. The prior year tax return showed taxable income of $100,000. Using a tax rate of 34%, compute Purple Rose's current income tax expense or benefit.

Bruin Company received a $100,000 insurance payment on the death of its company president. The company annually paid $1,000 of non-deductible 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 arecharacterized as:

Which of the following statements concerning the classification of deferred tax assets and liabilities is true?

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 adividends received deduction of $15,000 in computing its current year taxable income. Using a tax rate of 34%, Swordfish's deferred income tax expense or benefit would be:

A company's effective tax rate can best be described as:

Irish Corporation reported pretax book income of $1,000,000 in 2017. 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 taxableincome. Use this number to compute the company's total income tax provision or benefit for 2017, assuming a tax rate of 34%.

Which of the following statements best describes "book equivalent of taxable income" (BETI)?

Izzo Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $800,000. The favorable book-tax difference of $200,000 was due to a $100,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of$50,000 due to accrued vacation pay, and a $150,000 favorable permanent difference from the domestic manufacturing deduction. Izzo Company's applicable tax rate is 34%.a. Compute Izzo Company's current income tax expense.b. Compute Izzo Company's deferred income tax expense or benefit. c. Compute Izzo Company's effective tax rate.d. Provide a reconciliation of Izzo Company's effective tax rate with its hypothetical tax rate of 34%.

Which of the following items would likely not be included in the computation of a company's structural effective tax rate?

As part of its uncertain tax position assessment, Madison Corporation records interest and penalties related to its unrecognized tax benefits of $1,000,000. Which of thefollowing statements about recording this amount is most correct?

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. 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. During the year, the company's tax rate decreased from 34% to 30%. Lynch's deferred income tax expense or benefit for the current year would be:

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. Using a tax rate of 34%, compute Milton's deferred income tax expense or benefit.

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?

Price Corporation reported pretax book income of $600,000 in 2017. Tax depreciation exceeded book depreciation by $100,000. In addition, the reserve for warranties increased by $40,000. Price had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000. During the year, the company's tax rate decreased from 34% to30%. Compute the Company's current and deferred income tax expense or benefit for 2017.

Which of the following statements is true?

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 $90,000. Assuming a tax rate of 34%, the Corporation's current income tax expense or benefit would be: