Question 1

A cumulative financial accounting (book) loss over three years likely would be considered significant negative evidence in a valuation allowance analysis.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

A corporation's effective tax rate as computed in its income tax note is the company's cash tax rate for the year.

Accepted Answer

A) True 
 B)False

Question 4

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 5

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized.

Accepted Answer

A) True 
 B)False

Question 6

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:

Accepted Answer

A)  21%. 
B)  19.95%. 
C)  18.9%. 
D)  17.85%. 
A)  21%. 
B)  19.95%. 
C)  18.9%. 
D)  17.85%.

Question 7

Oriole Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $1,200,000. The unfavorable book-tax difference of $200,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $300,000 due to an increase in the reserve for bad debts, and a $100,000 unfavorable permanent difference from the disallowance of compensation expense related to the exercise of incentive stock options.
a. Compute Oriole's current income tax expense.
b. Compute Oriole's deferred income tax expense or benefit.
c. Compute Oriole's effective tax rate.
d. Provide a reconciliation of Oriole's effective tax rate with its hypothetical tax rate of 21%.

Accepted Answer

@#IMG-DLM& 
Total income tax provision =

Question 8

ASC 740 requires a publicly traded company to disclose the components of its deferred tax assets and liabilities only if the amounts are considered to be:

Accepted Answer

A)  Material. 
B)  Significant. 
C)  Pertinent. 
D)  Important. 
A)  Material. 
B)  Significant. 
C)  Pertinent. 
D)  Important.

Question 9

Which of the following taxes would not be accounted for under ASC 740?

Accepted Answer

A)  Income taxes paid to the German government. 
B)  Income taxes paid to the U.S. government. 
C)  Value-added taxes paid to the Swiss government. 
D)  Income taxes paid to the City of New York. 
A)  Income taxes paid to the German government. 
B)  Income taxes paid to the U.S. government. 
C)  Value-added taxes paid to the Swiss government. 
D)  Income taxes paid to the City of New York.

Question 10

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:

Accepted Answer

A)  $440,000. 
B)  $400,000. 
C)  $360,000. 
D)  $330,000. 
A)  $440,000. 
B)  $400,000. 
C)  $360,000. 
D)  $330,000.

Question 11

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 remote 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 remote the deferred tax asset will not be realized in the future.

Question 12

Which of the following statements is True?

Accepted Answer

A)  In determining if a valuation allowance is needed, positive evidence is considered more persuasive than negative evidence. 
B)  In determining if a valuation allowance is needed, negative evidence is considered more persuasive than positive evidence. 
C)  In determining if a valuation allowance is needed, negative and positive evidence must be evaluated equally. 
D)  In determining if a valuation allowance is needed, only negative evidence is evaluated. 
A)  In determining if a valuation allowance is needed, positive evidence is considered more persuasive than negative evidence. 
B)  In determining if a valuation allowance is needed, negative evidence is considered more persuasive than positive evidence. 
C)  In determining if a valuation allowance is needed, negative and positive evidence must be evaluated equally. 
D)  In determining if a valuation allowance is needed, only negative evidence is evaluated.

Question 13

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

Accepted Answer

A)  FASB. 
B)  SEC. 
C)  EITF. 
D)  IRS. 
A)  FASB. 
B)  SEC. 
C)  EITF. 
D)  IRS.

Question 14

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

Accepted Answer

A)  $140,700 tax expense. 
B)  $123,600 tax benefit. 
C)  $121,800 tax expense. 
D)  $105,000 tax benefit . 
A)  $140,700 tax expense. 
B)  $123,600 tax benefit. 
C)  $121,800 tax expense. 
D)  $105,000 tax benefit .

Question 15

Tax-exempt interest from municipal bonds is an example of a permanent book to tax difference.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Swordfish 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. In prior years, tax depreciation exceeded book depreciation by a cumulative amount of $500,000. Finally, Swordfish subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Swordfish's deferred income tax expense or benefit would be:

Accepted Answer

A)  $23,100 net deferred tax expense. 
B)  $23,100 net deferred tax benefit. 
C)  $26,250 net deferred tax benefit. 
D)  $26,250 net deferred tax expense. 
A)  $23,100 net deferred tax expense. 
B)  $23,100 net deferred tax benefit. 
C)  $26,250 net deferred tax benefit. 
D)  $26,250 net deferred tax expense.

Question 18

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Accepted Answer

A)  Accelerated tax depreciation in excess of straight-line book depreciation. 
B)  Prepayment income reported as income on the tax return prior to being reported as income on the financial income statement. 
C)  Gain reported on the income statement prior to being reported on the tax return. 
D)  Prepayment deduction reported on the tax return prior to being reported on the income statement. 
A)  Accelerated tax depreciation in excess of straight-line book depreciation. 
B)  Prepayment income reported as income on the tax return prior to being reported as income on the financial income statement. 
C)  Gain reported on the income statement prior to being reported on the tax return. 
D)  Prepayment deduction reported on the tax return prior to being reported on the income statement.

Question 19

Which of the following items is not a temporary difference?

Accepted Answer

A)  Vacation pay accrued for tax purposes in a prior period is deducted in the current period. 
B)  Tax depreciation for the period exceeds book depreciation. 
C)  A goodwill impairment expense is recorded on the income statement; the goodwill did not have a tax basis when it was created. 
D)  Bad debts charged off in the current period exceed the bad debts accrued in the current period. 
A)  Vacation pay accrued for tax purposes in a prior period is deducted in the current period. 
B)  Tax depreciation for the period exceeds book depreciation. 
C)  A goodwill impairment expense is recorded on the income statement; the goodwill did not have a tax basis when it was created. 
D)  Bad debts charged off in the current period exceed the bad debts accrued in the current period.

Question 20

Weaver Company had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000 (taxed at 34%). During the year, Weaver reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000 and unfavorable temporary differences of $20,000. At the beginning of the year, Congress reduced the corporate tax rate to 21%. Weaver's deferred income tax expense or benefit for the current year would be:

Accepted Answer

A)  Net deferred tax benefit of $6,300. 
B)  Net deferred tax expense of $6,300. 
C)  Net deferred tax benefit of $6,700. 
D)  Net deferred tax expense of $6,700. 
A)  Net deferred tax benefit of $6,300. 
B)  Net deferred tax expense of $6,300. 
C)  Net deferred tax benefit of $6,700. 
D)  Net deferred tax expense of $6,700.

A cumulative financial accounting (book) loss over three years likely would be considered significant negative evidence in a valuation allowance analysis.

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

A corporation's effective tax rate as computed in its income tax note is the company's cash tax rate for the year.

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized.

ASC 740 requires a publicly traded company to disclose the components of its deferred tax assets and liabilities only if the amounts are considered to be:

Which of the following taxes would not be accounted for under ASC 740?

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:

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

Which of the following statements is True?

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

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

Tax-exempt interest from municipal bonds is an example of a permanent book to tax difference.

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

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Which of the following items is not a temporary difference?

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The U.S. Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 6: Accounting for Income Taxes

A cumulative financial accounting (book) loss over three years likely would be considered significant negative evidence in a valuation allowance analysis.

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

A corporation's effective tax rate as computed in its income tax note is the company's cash tax rate for the year.

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized.

ASC 740 requires a publicly traded company to disclose the components of its deferred tax assets and liabilities only if the amounts are considered to be:

Which of the following taxes would not be accounted for under ASC 740?

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:

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

Which of the following statements is True?

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

Tax-exempt interest from municipal bonds is an example of a permanent book to tax difference.

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

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Which of the following items is not a temporary difference?

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The U.S. Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters