Exam 17: Accounting for Income Taxes

Robinson Company had a net deferred tax liability of $35,360 at the beginning of the year, representing a net taxable temporary difference of $104,000 (taxed at 34 percent). During the year, Robinson reported pretax book income of $404,000. Included in the computation were favorable temporary differences of $54,000 and unfavorable temporary differences of $22,000. During the year, Congress reduced the corporate tax rate to 21 percent. Robinson's deferred income tax expense or benefit for the current year would be:

Sparrow Corporation reported pretax book income of $5,025,000. During the current year, the reserve for warranties increased by $301,500. In addition, tax depreciation exceeded book depreciation by $402,000. Finally, Sparrow received $50,500 of tax-exempt interest from municipal bonds. Compute Sparrow's current income tax expense or benefit.

Which of the following statements is true?

Which of the following items is not a temporary difference?

A valuation allowance is recorded against a deferred tax asset when:

Purple Rose Corporation reported pretax book income of $560,000. Tax depreciation exceeded book depreciation by $303,600. In addition, the company received $310,000 of tax-exempt life insurance proceeds. The prior-year tax return showed taxable income of $101,200. Compute Purple Rose's current income tax expense or benefit.

Which of the following statements is true with respect to a company's effective tax rate reconciliation?

Temporary differences create either a deferred tax asset or a deferred tax liability.

Frost Corporation reported pretax book income of $3,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $350,000, and unfavorable permanent differences of $50,000. Compute Frost's deferred income tax expense or benefit.

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 life insurance proceeds. The prior-year tax return showed taxable income of $100,000. Compute Purple Rose's current income tax expense or benefit.

Smith 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. Smith's deferred income tax expense or benefit would be:

Identify the following items as creating a temporary difference, permanent difference, or no difference.

Whitman Corporation reported pretax book income of $400,000. Book depreciation exceeded tax depreciation by $100,000. In addition, the company accrued vacation pay of $50,000 that was not deductible until paid in the next year. Whitman has a net operating loss carryforward of $200,000 from the prior year. Compute the company's deferred income tax expense or benefit for the current year.

Smith Company reported pretax book income of $412,000. Included in the computation were favorable temporary differences of $52,400, unfavorable temporary differences of $21,200, and favorable permanent differences of $41,200. Smith's deferred income tax expense or benefit 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. Compute Milton's deferred income tax expense or benefit.

DeWitt Corporation reported pretax book income of $800,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $100,000 of tax-exempt municipal bond interest. DeWitt used a net operating loss carryover of $200,000 to offset taxable income in the current year. Compute DeWitt's book equivalent of taxable income. Use this number to compute DeWitt's total income tax provision or benefit for the current year.

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

Lynch Company had a net deferred tax asset of $68,408 at the beginning of the year, representing a net taxable deductible difference of $201,200 (taxed at 34 percent). During the year, Lynch reported pretax book income of $804,800. Included in the computation were favorable temporary differences of $21,200 and unfavorable temporary differences of $50,600.At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Lynch's deferred income tax expense or benefit for the current year would be:

DeWitt Corporation reported pretax book income of $803,200. Tax depreciation exceeded book depreciation by $401,600. In addition, the company received $100,400 of tax-exempt municipal bond interest. DeWitt used a net operating loss carryover of $200,800 to offset taxable income in the current year. Compute DeWitt's book equivalent of taxable income. Use this number to compute DeWitt's total income tax provision or benefit for the current year.

Packard Corporation reported pretax book income of $501,900. Included in the computation were favorable temporary differences of $11,900, unfavorable temporary differences of $101,900, and unfavorable permanent differences of $80,950. The corporation's current income tax expense or benefit would be: