Question 1

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

Accepted Answer

A)  A cumulative book loss over some period of time. 
B)  Management projects future taxable income based on a backlog of signed contracts. 
C)  A net operating loss expired unused in the current year. 
D)  Management can implement a tax strategy to create future taxable income, but it will be detrimental to the future profitability of the company. 
A)  A cumulative book loss over some period of time. 
B)  Management projects future taxable income based on a backlog of signed contracts. 
C)  A net operating loss expired unused in the current year. 
D)  Management can implement a tax strategy to create future taxable income, but it will be detrimental to the future profitability of the company.

Question 2

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

Accepted Answer

A)  ASC 740 requires a company to complete a two-step analysis every time it evaluates its uncertain tax positions. 
B)  ASC 740 requires a company to complete Step 2 (measurement) in its evaluation of its uncertain tax positions only if it is more likely than not that its tax position will be sustained on its merits (recognition). 
C)  ASC 740 allows a company to take into account the probability of audit by a tax authority in Step 1 (measurement) in its evaluation of its uncertain tax positions. 
D)  ASC 740 allows a company to record a tax benefit from an uncertain tax position only if it is probable the benefit will be sustained on audit by a tax authority. 
A)  ASC 740 requires a company to complete a two-step analysis every time it evaluates its uncertain tax positions. 
B)  ASC 740 requires a company to complete Step 2 (measurement) in its evaluation of its uncertain tax positions only if it is more likely than not that its tax position will be sustained on its merits (recognition). 
C)  ASC 740 allows a company to take into account the probability of audit by a tax authority in Step 1 (measurement) in its evaluation of its uncertain tax positions. 
D)  ASC 740 allows a company to record a tax benefit from an uncertain tax position only if it is probable the benefit will be sustained on audit by a tax authority.

Question 3

Tuna Corporation reported pretax book income of $1,005,000. During the current year, the net reserve for warranties increased by $27,500. In addition, book depreciation exceeded tax depreciation by $105,000. Finally, Tuna subtracted a dividends received deduction of $17,500 in computing its current-year taxable income. Book equivalent of taxable income is:

Accepted Answer

A)  $1,137,500. 
B)  $1,120,000. 
C)  $1,022,500. 
D)  $987,500. 
A)  $1,137,500. 
B)  $1,120,000. 
C)  $1,022,500. 
D)  $987,500.

Question 4

Temporary differences that are cumulatively "favorable" are referred to as taxable temporary differences.

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

$10,500 deferred income tax ex

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Green Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $50,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Green subtracted a dividends received deduction of $25,000 in computing its current-year taxable income. Green's cash tax rate is:

Accepted Answer

A)  21 percent. 
B)  20.475 percent. 
C)  19.95 percent. 
D)  19.425 percent. 
A)  21 percent. 
B)  20.475 percent. 
C)  19.95 percent. 
D)  19.425 percent.

Question 9

Tuna 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. Finally, Tuna subtracted a dividends received deduction of $15,000 in computing its current-year taxable income. Book equivalent of taxable income is:

Accepted Answer

A)  $1,125,000. 
B)  $1,110,000. 
C)  $1,015,000. 
D)  $985,000. 
A)  $1,125,000. 
B)  $1,110,000. 
C)  $1,015,000. 
D)  $985,000.

Question 10

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.

Accepted Answer

${{[a(6)]:

Question 11

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

Accepted Answer

A) True 
 B)False

Question 12

Potter, Incorporated reported pretax book income of $5,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by $300,000. Potter sold a fixed asset and reported book gain of $60,000 and tax gain of $80,000. Finally, the company received $50,000 of tax-exempt municipal bond interest. Compute Potter's deferred income tax expense or benefit.

Accepted Answer

$37,800 deferred income tax ex

Question 13

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

Accepted Answer

A)  It is probable that the deferred tax asset will not be realized in the future. 
B)  It is more likely than not that the deferred tax asset will not be realized in the future. 
C)  It is highly likely the deferred tax asset will not be realized in the future. 
D)  It is only remotely possible that the deferred tax asset will not be realized in the future. 
A)  It is probable that the deferred tax asset will not be realized in the future. 
B)  It is more likely than not that the deferred tax asset will not be realized in the future. 
C)  It is highly likely the deferred tax asset will not be realized in the future. 
D)  It is only remotely possible that the deferred tax asset will not be realized in the future.

Question 14

The focus of ASC 740 is on the income statement.

Accepted Answer

A) True 
 B)False

Question 15

Cardinal Corporation reported pretax book income of $3,000,000. During the current year, the reserve for bad debts increased by $200,000. In addition, book depreciation exceeded tax depreciation by $100,000. Cardinal sold a fixed asset and reported a book gain of $60,000 and a tax gain of $80,000. Finally, Cardinal deducted $50,000 of domestic production activities deduction on its tax return. Compute Cardinal's current income tax expense or benefit.

Accepted Answer

$686,700 c

Question 16

ASC 740 deals with accounting for uncertain tax positions.

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

$10,500 cu

Question 18

Weaver Company had a net deferred tax liability of $34,476 at the beginning of the year, representing a net taxable temporary difference of $101,400 (taxed at 34 percent). During the year, Weaver reported pretax book income of $405,600. Included in the computation were unfavorable temporary differences of $51,400 and favorable temporary differences of $22,800. At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Weaver's deferred income tax expense or benefit for the current year would be:

Accepted Answer

A)  Net deferred tax benefit of $6,006. 
B)  Net deferred tax expense of $6,006. 
C)  Net deferred tax benefit of $19,188. 
D)  Net deferred tax expense of $19,188. 
A)  Net deferred tax benefit of $6,006. 
B)  Net deferred tax expense of $6,006. 
C)  Net deferred tax benefit of $19,188. 
D)  Net deferred tax expense of $19,188.

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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?

Accepted Answer

A)  A publicly traded company should disclose the approximate "tax effect" (dollar amounts) of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
B)  A publicly traded company should disclose the approximate "tax effect" (dollar amounts) of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements. 
C)  A privately held company should disclose the approximate "tax effect" (dollar amounts) of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
D)  A privately held company should disclose the approximate "tax effect" (dollar amounts) of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements. 
A)  A publicly traded company should disclose the approximate "tax effect" (dollar amounts) of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
B)  A publicly traded company should disclose the approximate "tax effect" (dollar amounts) of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements. 
C)  A privately held company should disclose the approximate "tax effect" (dollar amounts) of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
D)  A privately held company should disclose the approximate "tax effect" (dollar amounts) of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements.

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

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

Temporary differences that are cumulatively "favorable" are referred to as taxable temporary differences.

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

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

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

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

The focus of ASC 740 is on the income statement.

ASC 740 deals with accounting for uncertain tax positions.

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 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?

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Business Entities Overview

Corporate Operations

Corporate Taxation: Non-Liquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 6: Accounting for Income Taxes

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

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

Temporary differences that are cumulatively "favorable" are referred to as taxable temporary differences.

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

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

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

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

The focus of ASC 740 is on the income statement.

ASC 740 deals with accounting for uncertain tax positions.

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 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?

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Business Entities Overview

Corporate Operations

Corporate Taxation: Non-Liquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters