Exam 6: Accounting for Income Taxes

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:

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

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.

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

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. 

Farm Corporation reported pretax book loss of $500,000 in 2018. Tax depreciation exceeded book depreciation by $100,000. In addition, Farm received prepaid income of $50,000, which was included on its tax return but was not included in the book loss. Compute the company's income tax expense or benefit for 2018.

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

Which of the following items does not result in a permanent difference?

Abbot Corporation reported pretax book income of $500,000. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, Abbot received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Abbot's current income tax expense or benefit would be:

The focus of ASC 740 is the income statement.

Which of the following book-tax basis differences results in a deductible temporary difference?

Which of the following statements best describes "book equivalent of taxable income" (BETI)?

Lafayette, Inc. completed its first year of operations with a pretax loss of $800,000. The tax return showed a net operating loss of $750,000. The $50,000 book-tax difference results from a disallowed deduction for business-related meals. 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. 

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

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

ASC 740 applies to accounting for state and local and international income taxes as well as federal income taxes.

Kedzie Company determined that the book basis of its liability for "other post-retirement benefits" (OPEB) exceeded the tax basis of this account by $10,000,000. This basis difference is characterized as:

Which of the following statements best describes a valuation allowance as it relates to accounting for income taxes?

ASC 740 deals with accounting for uncertain tax positions.

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