Exam 6: Accounting for Income Taxes

B-Line 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 dividends received deduction. a. Compute B-Line's current income tax expense. b. Compute B-Line's deferred income tax expense or benefit. c. Compute B-Line's effective tax rate. d. Provide a reconciliation of B-Line's effective tax rate with its hypothetical tax rate of 21%.

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

What confidence level must management have that a tax position will be sustained on audit before it can recognize any portion of the related deferred tax asset under ASC 740?

Price Corporation reported pretax book income of $600,000 in 2018. 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 to 21%. Compute the company's current and deferred income tax expense or benefit for 2018.

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

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

Potter, Inc. 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.

Which of the following statements about ASC 740 as it relates to uncertain tax positions is True?

Which of the following statements best describes the objective(s) of ASC 740?

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?

Stone Corporation reported pretax book income of $1,000,000 in 2018. Tax depreciation exceeded book depreciation by $300,000. In addition, the reserve for bad debts decreased by $50,000. Stone had a net deferred tax asset of $34,000 at the beginning of the year, representing a net deductible temporary difference of $100,000 (taxed at 34%). At the beginning of the tax year, Congress reduced the corporate tax rate to 21%. Compute the Company's current and deferred income tax expense or benefit for 2018.

Which of the following statements is True?

Knollcrest Corporation has a cumulative book loss over the past 36 months. Which of the following statements best describes how this fact enters into the valuation allowance analysis?

Irish Corporation reported pretax book income of $1,000,000 in 2018. 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 taxable income. Use this number to compute the company's total income tax provision or benefit for 2018.

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 the following statements about recording this amount is most correct?

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:

MAC, Inc. completed its first year of operations with a pretax loss of $300,000. The tax return showed a net operating loss of $500,000. The $200,000 book-tax difference results from excess tax depreciation over book depreciation. Management has determined that they should record a valuation allowance equal to the net deferred tax asset. Prepare the journal entries to record the deferred tax provision and the valuation allowance.

Which of the following items is not a permanent book/tax difference?

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