Question 1

A GAAP financial statement includes footnotes that:

Accepted Answer

A)  Give estimates of the dates on which the deferred tax liability will be paid. 
B)  Show the journal entries to determine the deferred income tax expense. 
C)  Break down the state-by-state profitability of the entity. 
D)  Include a reconciliation of the book effective tax rate with the applicable statutory tax rate. 
A)  Give estimates of the dates on which the deferred tax liability will be paid. 
B)  Show the journal entries to determine the deferred income tax expense. 
C)  Break down the state-by-state profitability of the entity. 
D)  Include a reconciliation of the book effective tax rate with the applicable statutory tax rate.

Question 2

Black, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 21% corporate tax rate and no valuation allowance.   Black, Inc.'s, gross deferred tax assets and liabilities at the beginning of Black's year are listed below. $\begin{array}{ll}&\text { Beginning of Year }\
\text { Accrued litigation expense } & \$ 20,000 \
\text { Subtotal } & \$ 20,000
\end{array}$

Black, Inc.'s, book income before tax is $6,000. Black records two permanent book-tax differences.
It earned $250 in tax-exempt municipal bond interest and incurred $500 in nondeductible business meals expense. Determine the change in Black's deferred tax liabilities for the current year.

Accepted Answer

The answer of Black, Inc., is a domestic corporation with...

Question 3

Which of the following items represents a temporary book-tax difference?

Accepted Answer

A)  Municipal bond interest. 
B)  Federal income tax paid. 
C)  Addition to bad debt allowance. 
D)  Nondeductible penalties. 
A)  Municipal bond interest. 
B)  Federal income tax paid. 
C)  Addition to bad debt allowance. 
D)  Nondeductible penalties.

Question 4

Bryden Corporation is considering two tax planning strategies. Both would produce a $1 million tax savings. One of
the strategies would structure the plan so that the $1 million would represent a temporary book-tax difference, and the other would generate a permanent difference. In general, which plan would the Bryden CFO prefer? Which would a stock analyst reviewing the Bryden valuation prefer?

Accepted Answer

In most cases, the CFO would prefer the

Question 5

South, Inc., earns book net income before tax of $400,000 in year 1. It acquires a depreciable asset in year 1, and its first-year tax depreciation exceeds book depreciation by $50,000. At the end of year 1, South's deferred tax liability account balance is $10,500. In year 2, South earns $500,000 book net income before tax, and its book depreciation exceeds tax depreciation by $20,000. South records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21%, what is South's total provision for income tax expense reported on its GAAP financial statements for year 2?

Accepted Answer

A)  $4,200 
B)  $94,500 
C)  $105,000 
D)  $109,200 
A)  $4,200 
B)  $94,500 
C)  $105,000 
D)  $109,200

Question 6

ASC 740 is the GAAP equivalent of the Form 1120 Schedule UTP.

Accepted Answer

A) True 
 B)False

Question 7

Phyllis, Inc., earns book net income before tax of $600,000. Phyllis puts into service a depreciable asset this year, and its first-year tax depreciation exceeds book depreciation by $120,000. Phyllis has recorded no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21%, what is Phyllis's total income tax expense reported on its GAAP financial statements?

Accepted Answer

A)  $151,200 
B)  $126,000 
C)  $100,800 
D)  $25,200 
A)  $151,200 
B)  $126,000 
C)  $100,800 
D)  $25,200

Question 8

Never, Inc., earns book net income before tax of $500,000. In computing its book income, Never deducts $50,000 more in warranty expense for book purposes than is allowed for tax purposes. Never records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21% and no valuation allowance is required, what is Never's deferred income tax asset reported on its GAAP financial statements?

Accepted Answer

A)  $115,500 
B)  $105,000 
C)  $94,500 
D)  $10,500 
A)  $115,500 
B)  $105,000 
C)  $94,500 
D)  $10,500

Question 9

Black, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 21% corporate tax rate and no valuation allowance. $\begin{array}{lrr}&\text { Tax Debit/(Credit) }&\text { Book Debit/(Credit) }\
\text { Assets }\
\text { Cash } & \$ 300 & \$300 \
\text { Accounts receivable } & 5,000 & 5,000  \
\text { Buildings } & 300,000 & 300,000 \
\quad \text { Accumulated depreciation } & (150,000) & (80,000) \
\text { Furniture \& fixtures } & 40,000 & 40,000 \
\quad \text { Accumulated depreciation } & (21,000) & (15,000) \
\text { Total assets } & \$ 174,300 & \$ 250,300\\\text { Liabilities }
\end{array}$ $\begin{array}{lrr}
\text { Accrued litigation expense } & \$-0- & (\$ 27,000) \
\text { Note payable } & (116,000) & (116.000) \
\text { Total liabilities } & (\$ 116.000) & (\$ 143,000)\\
\text { Stockholders' Equity } & & \
\text { Paid in capital } & (\$ 1,000) & (\$ 1,000) \
\text { Retained earnings } & (57.300) & (106.300)\\text { Total liabilities and }\
\text { stockholders' equity }&(\$174,300)&(\$250,300)
\end{array}$ Black, Inc.'s, gross deferred tax assets and liabilities at the beginning of Black's year are as follows:   Black, Inc.'s, book income before tax is $6,000. Black records two permanent book-tax differences.
It earned $250 in tax-exempt municipal bond interest, and it incurred $500 in nondeductible business meals expense. Provide the journal entry to record Black's current tax expense.

Accepted Answer

Income Tax Expense $

Question 10

Which of the following taxes are included in the total income tax liability of a corporation reported on its Federal income tax return?

Accepted Answer

A)  Federal income taxes. 
B)  Foreign income taxes. 
C)  State income taxes. 
D)  All these taxes are included. 
A)  Federal income taxes. 
B)  Foreign income taxes. 
C)  State income taxes. 
D)  All these taxes are included.

Question 11

Jogg, Inc., earns book net income before tax of $600,000. It puts into service a depreciable asset this year, and its first-year tax depreciation exceeds book depreciation by $120,000. Jogg has recorded no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21%, and that this is Jogg's first year of operations, what is Jogg's balance in its deferred tax asset and deferred tax liability accounts at year-end?

Accepted Answer

A)  $25,200 and $0. 
B)  $0 and $0. 
C)  $0 and $25,200. 
D)  $25,200 and $25,200. 
A)  $25,200 and $0. 
B)  $0 and $0. 
C)  $0 and $25,200. 
D)  $25,200 and $25,200.

Question 12

JuarezCo constructs the following table in determining how to apply ASC 740-10 to its filing position for its domestic production activities deduction. Its book-tax provision for the year, including $3 million for the uncertain transfer pricing issue, is $10 million. $$\begin{array} { c c c } 
\begin{array} { c } 
\text { Resulting Estimated Tax } \
\text { Benefit }
\end{array} & \begin{array} { c } 
\text { Probability of Agreement between } \
\text { JuarezCo and IRS }
\end{array} & \begin{array} { c } 
\text { Cumulative Probability of } \
\text { Agreement }
\end{array} \
\text { \$3 million } & 10 \% & 10 \% \
\text { \$2 million } & 45 \% & 55 \% \
\text { \$1.6 million } & 40 \% & 95 \% \
\text { \$1.1 million } & 5 \% & 100 \%
\end{array}$$ Under ASC 740-10, JuarezCo's book income tax expense for this item is:

Accepted Answer

A)  $13 million. 
B)  $12 million. 
C)  $11.4 million. 
D)  $11 million. 
A)  $13 million. 
B)  $12 million. 
C)  $11.4 million. 
D)  $11 million.

Question 13

Black, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 21% corporate tax rate and no valuation allowance. 
$\text { Assets } \quad \text { Tax Debit/(Credit) Book Debit/(Credit) }$
$\begin{array}{lrr}
\text { Cash } & \$ 300 & \$ 300 \
\text { Accounts Receivable } & 5,000 & 5,000 \
\text { Buildings } & 300,000 & 300,000 \
\text { Accumulated Depreciation } & (150,000) & (80,000) \
\text { Furniture \& Fixtures } & 40,000 & 40,000 \
\text { Accumulated Depreciation } & (21.000) & (15,000)\
\text { Total Assets }&\$174,000&\$250,300\\
\text { Liabilities }\
\text { Accrued Litigation Expense } & \$-0- & (\$ 27,000) \
\text { Note Payable } & {(116,000)} & (116,000) \
\text { Total Liabilities } &{(\$ 116,000)}& \$ 143,000)\\
\text { Stockholders' Equity }\
\text { Paid in Capital } & (\$ 1,000) & (\$ 1,000) \
\text { Retained Earnings } & (57,300) & (106,300) \
\text { Total Liabilities and } & & \
\text { Stockholders' Equity } & (\$ 174,300) & (\$ 250,300)\
\end{array}$
 Black, Inc.'s, book income before tax is $6,000. Black records two permanent book-tax differences.
It earned $250 in tax-exempt municipal bond interest, and it incurred $500 in nondeductible business meals expense. Determine the change in Black's deferred tax assets for the current year.

Accepted Answer

The answer of Black, Inc., is a domestic corporation with...

Question 14

Purple, Inc., a domestic corporation, owns 100% of Blue, Ltd., a foreign corporation and Yellow, Inc., a domestic corporation. Purple also owns 40% of Green, a domestic corporation. Purple receives no distributions from any of these corporations. Which of these entities' net income is included in Purple's GAAP income statement for current- year financial reporting purposes?

Accepted Answer

A)  Purple, Yellow, and Green. 
B)  Purple, Blue, and Yellow. 
C)  Purple, Blue, and Green. 
D)  Purple, Blue, Yellow, and Green. 
A)  Purple, Yellow, and Green. 
B)  Purple, Blue, and Yellow. 
C)  Purple, Blue, and Green. 
D)  Purple, Blue, Yellow, and Green.

Question 15

South, Inc., earns book net income before tax of $400,000 in year 1. It acquires a depreciable asset in year 1, and its first-year tax depreciation exceeds book depreciation by $50,000. At the end of year 1, South's deferred tax liability account balance is $10,500. In year 2, South earns $500,000 book net income before tax, and its book depreciation exceeds tax depreciation by $20,000. South records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21% in both years, what is South's balance in its deferred tax liability account at the end of year 2?

Accepted Answer

A)  $0 
B)  $4,200 
C)  $6,300 
D)  $10,500 
A)  $0 
B)  $4,200 
C)  $6,300 
D)  $10,500

Question 16

The best estimate of the actual current-year income tax liability i.e., perhaps the amount of the checks that the taxpayer will write to taxing jurisdictions) is the:

Accepted Answer

A)  Change in the deferred tax asset account balance. 
B)  Change in the deferred tax liability account balance. 
C)  Current tax expense. 
D)  Current E&P. 
A)  Change in the deferred tax asset account balance. 
B)  Change in the deferred tax liability account balance. 
C)  Current tax expense. 
D)  Current E&P.

Question 17

Black, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 21% corporate tax rate and no valuation allowance.   Black, Inc.'s, gross deferred tax assets and liabilities at the beginning of Black's year are as follows:   Black, Inc.'s, book income before tax is $6,000. Black records two permanent book-tax differences.
It earned $250 in tax-exempt municipal bond interest and incurred $500 in nondeductible business meals expense. Provide the income tax footnote rate reconciliation for Black, using either
dollars or percentages.

Accepted Answer

The answer of Black, Inc., is a domestic corporation with...

Question 18

Which of the following statements best describes considerations regarding a company's tax expense that users of GAAP financial statements may make?

Accepted Answer

A)  The breakdown of tax expense between current and deferred may provide useful information regarding the comparison of tax burdens between companies. 
B)  An analysis of earnings before interest, taxes, depreciation, and amortization EBITD
A)  is often a better approach to comparing the operating results of two companies. 
C)  One-time effects within a company's effective tax rate should be removed before comparing the effective tax rates across companies or across years for the same company). 
D)  All these observations are correct. 
A)  The breakdown of tax expense between current and deferred may provide useful information regarding the comparison of tax burdens between companies. 
B)  An analysis of earnings before interest, taxes, depreciation, and amortization EBITD
A)  is often a better approach to comparing the operating results of two companies. 
C)  One-time effects within a company's effective tax rate should be removed before comparing the effective tax rates across companies or across years for the same company). 
D)  All these observations are correct.

Question 19

A deferred tax liability represents a potential future tax benefit associated with income reported in the current-year
GAAP financial statements.

Accepted Answer

A) True 
 B)False

Question 20

Schedule UTP of the Form 1120 reconciles financial statement net income after tax with a large corporation's taxable income.

Accepted Answer

A) True 
 B)False

A GAAP financial statement includes footnotes that:

Which of the following items represents a temporary book-tax difference?

ASC 740 is the GAAP equivalent of the Form 1120 Schedule UTP.

Which of the following taxes are included in the total income tax liability of a corporation reported on its Federal income tax return?

The best estimate of the actual current-year income tax liability i.e., perhaps the amount of the checks that the taxpayer will write to taxing jurisdictions) is the:

Which of the following statements best describes considerations regarding a company's tax expense that users of GAAP financial statements may make?

A deferred tax liability represents a potential future tax benefit associated with income reported in the current-year GAAP financial statements.

Schedule UTP of the Form 1120 reconciles financial statement net income after tax with a large corporation's taxable income.

Understanding and Working With the Federal Tax Law

The Deduction for Qualified Business Income for Pass-Through Entities

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Earnings and Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operations, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 14: Taxes on the Financial Statements

A GAAP financial statement includes footnotes that:

Which of the following items represents a temporary book-tax difference?

ASC 740 is the GAAP equivalent of the Form 1120 Schedule UTP.

Which of the following taxes are included in the total income tax liability of a corporation reported on its Federal income tax return?

The best estimate of the actual current-year income tax liability i.e., perhaps the amount of the checks that the taxpayer will write to taxing jurisdictions) is the:

Which of the following statements best describes considerations regarding a company's tax expense that users of GAAP financial statements may make?

A deferred tax liability represents a potential future tax benefit associated with income reported in the current-year GAAP financial statements.

Schedule UTP of the Form 1120 reconciles financial statement net income after tax with a large corporation's taxable income.

Understanding and Working With the Federal Tax Law

The Deduction for Qualified Business Income for Pass-Through Entities

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Earnings and Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operations, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters