Exam 16: Accounting for Income Taxes

Which of the following causes a temporary difference between taxable and pretax accounting income?

The Kelso Company had the following operating results: What is the income tax refund receivable?

Future taxable amounts result in deferred tax assets.

What would Kent's income tax expense be in the year 2016?

The tax benefit of a net operating loss carried back two years represents a current receivable for income tax to be refunded.

Recognizing tax benefits in a loss year due to a net operating loss carryforward requires:

Expenditures currently deducted in the tax return but not included with expenses in the income statement until subsequent years create deferred tax liabilities.

For the current year ($ in millions),Centipede Corp.had $80 in pretax accounting income.This included warranty expense of $6 and $20 in depreciation expense.Two million of warranty costs were incurred,and MACRS depreciation amounted to $35.In the absence of other temporary or permanent differences,what was Centipede's income tax payable currently,assuming a tax rate of 40%?

At the end of the prior year,Doubtful Inc.had a deferred tax asset of $20,000,000 attributable to its only timing difference,a temporary difference of $50,000,000 in a liability for estimated expenses.At that time,a valuation allowance of $4,000,000 was established.At the end of the current year,the temporary difference is $45,000,000,and Doubtful determines that the balance in the valuation account should now be $5,000,000.Taxable income is $15,000,000 and the tax rate is 40% for all years. Required: Prepare journal entries to record Doubtful's income tax expense for the current year.Show well-labeled supporting computations for the income tax payable,the valuation allowance,and the change in the deferred tax asset account.

The financial reporting carrying value of Boze Music's only depreciable asset exceeded its tax basis by $150,000 at December 31,2016.This was a result of differences between straight-line depreciation for financial reporting purposes and MACRS for tax purposes.The asset was acquired earlier in the year.Boze has no other temporary differences.The enacted tax rate is 30% for 2016 and 40% thereafter.Boze should report the deferred tax effect of this difference in its December 31,2016,balance sheet as:

Before considering a net operating loss carryforward of $80 million,Fama Corporation reported $200 million of pretax accounting and taxable income in the current year.The income tax rate for all previous years was 40%.On January 1 of the current year,a new tax law was enacted,reducing the rate to 30% effective immediately.Fama's income tax payable for the current year would be:

At the end of the preceding year,World Industries had a deferred tax asset of $17,500,000,attributable to its only temporary difference of $50,000,000 for estimated expenses.At the end of the current year,the temporary difference is $45,000,000.At the beginning of the year there was no valuation account for the deferred tax asset.At year-end,World Industries now estimates that it is more likely than not that one-third of the deferred tax asset will never be realized.Taxable income is $12,000,000 for the current year and the tax rate is 30% for all years. Required: Prepare journal entries to record World Industries' income tax expense for the current year.Show well-labeled supporting computations for each component of the journal entries.

According to GAAP for accounting for income taxes,when a company has a net operating loss carryforward:

The information below pertains to Mondavi Corporation: (a. )For the current year temporary differences existed between the financial statement carrying amounts and the tax basis of the following: (b. )No temporary differences existed at the beginning of the year. (c. )Pretax accounting income was $300,000,000 and taxable income was $120,000,000 for the year and the tax rate is 40%. Required: Prepare one journal entry to record the tax provision for the current year.Provide supporting computations.

GAAP regarding accounting for income taxes requires the following procedure:

In its first three years of operations Sharp Chairs reported the following operating income (loss)amounts: There were no deferred income taxes in any year.In 2015,Sharp elected to carry back its operating loss.The enacted income tax rate was 35% in 2014 and 40% thereafter.In its 2016 balance sheet,what amount should Sharp report as current income tax payable?

The basic issue in deciding whether to record a valuation allowance for a deferred tax asset is if probable taxable income is anticipated to be insufficient to realize the tax benefit.

Wayne Co.had an decrease in deferred tax liability of $20 million,a decrease in deferred tax assets of $10 million,and an increase in tax payable of $100 million.The company is subject to a tax rate of 40%.The total income tax expense for the year was:

Alamo Inc.had $300 million in taxable income for the current year.Alamo also had a decrease in deferred tax assets of $30 million and an increase in deferred tax liabilities of $60 million.The company is subject to a tax rate of 40%.The total income tax expense for the year was:

What events create permanent differences between accounting income and taxable income? What effect do these events have on the determination of income taxes payable and deferred income taxes?