Exam 17: Accounting for Income Taxes

Publicly traded companies usually file their financial statements before they file their federal income tax returns.

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 statements about ASC 740 as it relates to uncertain tax positions is true?

Jones Company reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000, unfavorable temporary differences of $20,000, and favorable permanent differences of $40,000. Book equivalent of taxable income is:

Price Corporation reported pretax book income of $600,000. 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. At the beginning of the year, Congress reduced the corporate tax rate from 34 percent to 21 percent. Compute the company's current and deferred income tax expense or benefit.

TarHeel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $100,000. In addition, tax depreciation exceeded book depreciation by $200,000. Finally, TarHeel subtracted a dividends received deduction of $50,000 in computing its current-year taxable income. TarHeel's accounting effective tax rate is:

Once determined, an unrecognized tax benefit under ASC 740 is not readjusted for subsequent events.

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

Angel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Angel subtracted a dividends received deduction of $25,000 in computing its current-year taxable income. Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.

Suppose that on December 22, 2019 Congress increased the corporate tax rate from 21 percent to 25 percent effective in 2020. The tax rate change will affect only deferred tax assets and liabilities that arise in 2020 and thereafter.

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

Brown Corporation reports $100,000 of gain from the sale of land on its income statement. For tax purposes, Brown uses the installment method and reports gain of $10,000. The $90,000 difference in the gain reported is a deductible temporary difference.

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

The Emerging Issues Task Force assists the FASB by providing guidance on the implementation of ASC 740 and other accounting pronouncements.

Purple Rose Corporation reported pretax book income of $585,000. Tax depreciation exceeded book depreciation by $305,100. In addition, the company received $335,000 of tax-exempt life insurance proceeds. The prior-year tax return showed taxable income of $101,700. Compute Purple Rose's current income tax expense or benefit.

Grand River Corporation reported pretax book income of $500,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $10,000, and favorable permanent differences of $80,000. The corporation's current income tax expense or benefit would be:

Entities classify all deferred tax assets and liabilities as noncurrent on the balance sheet.

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

Which of the following items is not considered evidence in determining if a valuation allowance is necessary?