Question 1

The valuation allowance account that is used in conjunction with deferred tax assets is a(n):

Accepted Answer

A) Liability. 
B) Component of shareholders' equity. 
C) Asset. 
D) Contra asset. 
A) Liability. 
B) Component of shareholders' equity. 
C) Asset. 
D) Contra asset.

Question 2

Sometimes a temporary difference will produce future deductible amounts.Explain what is meant by future deductible amounts.Describe at least one situation that has this effect.How are future deductible amounts recognized in the financial statements?

Accepted Answer

Future deductible amounts mean that taxa

Question 3

Use the following to answer questions 
The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars):
   The applicable tax rate is 40%.There are no other temporary or permanent differences.
-Which of the following must Franklin Freightways disclose related to the income tax expense reported in the income statement ($ in millions)?

Accepted Answer

A) Only the current portion of tax expense of $66. 
B) Only the total tax expense of $82. 
C) Both the current portion of the tax expense of $66 and the deferred portion of the tax expense of $16. 
D) None of these answer choices are correct. 
A) Only the current portion of tax expense of $66. 
B) Only the total tax expense of $82. 
C) Both the current portion of the tax expense of $66 and the deferred portion of the tax expense of $16. 
D) None of these answer choices are correct.

Question 4

EZ,Inc. ,reports pretax accounting income of $400,000,but due to a single temporary difference,taxable income is $500,000.At the beginning of the year,no temporary differences existed.EZ is subject to a tax rate of 40%.
Required:
Prepare the appropriate journal entry to record EZ's income taxes.Show well-labeled computations.

Accepted Answer

The answer of EZ,Inc. ,reports pretax accounting income of $400,000,but...

Question 5

Gallo Light began operations in 2016.The company sometimes sells used warehouses on an installment basis.In those cases,Gallo Light reports income in its income statement in the year of the sale.In its income tax return,though,Gallo Light reports installment income by the installment method.Installment income in 2016 was $90,000,which Gallo Light expects to collect equally over the next three years.The tax rate is 30%,but based on an enacted law,is scheduled to become 35% in 2018.
Gallo Light's pretax accounting income from the 2016 income statement was $830,000,which includes $40,000 of interest revenue from an investment in municipal bonds.There were no differences between accounting income and taxable income other than those described above.
Required:
(1. )Prepare the appropriate journal entry to record Gallo Light's 2016 income taxes.Show calculations.
(2. )What is Gallo Light's 2016 net income?

Accepted Answer

The answer of Gallo Light began operations in 2016.The company...

Question 6

The valuation allowance account that is used in conjunction with deferred taxes relates:

Accepted Answer

A) Only to deferred tax liabilities. 
B) To both deferred tax assets and liabilities. 
C) Only to deferred tax assets. 
D) Only to income taxes receivable due to net operating loss carrybacks. 
A) Only to deferred tax liabilities. 
B) To both deferred tax assets and liabilities. 
C) Only to deferred tax assets. 
D) Only to income taxes receivable due to net operating loss carrybacks.

Question 7

When a new tax rate is enacted,what adjustment,if any,is made to the retained earnings account as a result of the change?

Accepted Answer

No adjustment is made to retained earnin

Question 8

Use the following to answer questions 
In LMC's 2016 annual report to shareholders,it disclosed the following information about its income taxes:
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the amounts of assets and liabilities for accounting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets as of December 31 were as follows:
  
-Explain why LMC has a $209.4 million valuation allowance for its deferred tax assets.

Accepted Answer

Apparently,it is more likely than not th

Question 9

Which of the following statements is true as to GAAP regarding accounting for income taxes,and its use of the asset and liability approach?

Accepted Answer

A) Considerable flexibility is permitted in the balance sheet classification of deferred tax amounts. 
B) The approach recognizes the time value of money. 
C) The approach is consistent with a balance sheet emphasis of U.S.GAAP and the International Financial Reporting Standards (IFRS). 
D) The approach is consistent with cash basis accounting. 
A) Considerable flexibility is permitted in the balance sheet classification of deferred tax amounts. 
B) The approach recognizes the time value of money. 
C) The approach is consistent with a balance sheet emphasis of U.S.GAAP and the International Financial Reporting Standards (IFRS). 
D) The approach is consistent with cash basis accounting.

Question 10

Bumble Bee Co.had taxable income of $7,000,MACRS depreciation of $5,000,book depreciation of $2,000,and accrued warranty expense of $400 on the books although no warranty work was performed.What is Bumble Bee's pretax accounting income?

Accepted Answer

A) $4,400. 
B) $3,600. 
C) $9,600. 
D) $2,600. 
A) $4,400. 
B) $3,600. 
C) $9,600. 
D) $2,600.

Question 11

During the current year,Stern Company had pretax accounting income of $45 million.Stern's only temporary difference for the year was rent received for the following year in the amount of $15 million.Stern's taxable income for the year would be:

Accepted Answer

A) $30 million. 
B) $60 million. 
C) $50 million. 
D) $45 million. 
A) $30 million. 
B) $60 million. 
C) $50 million. 
D) $45 million.

Question 12

Financial statement disclosure of the components of income tax expense:

Accepted Answer

A) Must be made on the face of the income statement. 
B) Usually is included in the disclosure notes. 
C) Is not necessary when only permanent differences exist. 
D) Must include the amount of cash paid for taxes. 
A) Must be made on the face of the income statement. 
B) Usually is included in the disclosure notes. 
C) Is not necessary when only permanent differences exist. 
D) Must include the amount of cash paid for taxes.

Question 13

Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset?

Accepted Answer

A) Unrealized loss from recording inventory impairments. 
B) Prepaid expenses. 
C) Installment sales for which taxable income recognized when cash is collected. 
D) None of these answer choices are correct. 
A) Unrealized loss from recording inventory impairments. 
B) Prepaid expenses. 
C) Installment sales for which taxable income recognized when cash is collected. 
D) None of these answer choices are correct.

Question 14

Deferred tax assets and liabilities typically are classified as current or long term according to when the underlying temporary difference is expected to reverse.

Accepted Answer

A) True 
 B)False

Question 15

Pocus,Inc. ,reports warranty expense when related products are sold.For tax purposes,the warranty costs are deductible as incurred.At the end of the current year,Pocus has a warranty liability of $200,000 and taxable income of $20,000,000.At the end of the previous year,Pocus reported a deferred tax asset of $80,000 related to the difference in reporting warranty expense,its only temporary difference.The enacted tax rate is 30% each year.
Required:
Prepare the appropriate journal entry for Pocus to record the income tax provision for the current year.Show well-labeled supporting computations.

Accepted Answer

The answer of Pocus,Inc. ,reports warranty expense when related products...

Question 16

Use the following to answer questions 
For its first year of operations,Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows:
   Tringali's tax rate is 40%.Assume that no estimated taxes have been paid.
- 
Tringali's tax rate is 40%.
What should Tringali report as its deferred income tax liability as of the end of its first year of operations?

Accepted Answer

A) $35,000. 
B) $20,000. 
C) $14,000. 
D) $ 8,000. 
A) $35,000. 
B) $20,000. 
C) $14,000. 
D) $ 8,000.

Question 17

A reconciliation of pretax financial statement income to taxable income is shown below for Fieval Industries for the year ended December 31,2016,its first year of operations.The income tax rate is 40%.  
What amount(s)should Fieval report related to deferred income taxes in its 2016 balance sheet?

Accepted Answer

A) Current asset of $10,000 and noncurrent liability of $28,000. 
B) Noncurrent liability of $18,000. 
C) Current asset of $4,000 and noncurrent liability of $28,000. 
D) Noncurrent liability of $24,000. 
A) Current asset of $10,000 and noncurrent liability of $28,000. 
B) Noncurrent liability of $18,000. 
C) Current asset of $4,000 and noncurrent liability of $28,000. 
D) Noncurrent liability of $24,000.

Question 18

Listed below are five independent situations.For each situation indicate (by letter)whether it will create (A)a deferred tax asset, (L)a deferred tax liability,or (N)neither.
____ An operating loss carryback.
____ Warranty expense,tax deductible when paid.
____ Interest earned on investments in state and local government bonds.
____ Current year charitable contributions not currently deductible due to tax limitations but
which can be carried forward to future tax years.
____ Prepaid expenses,tax deductible when paid.

Accepted Answer

The answer of Listed below are five independent situations.For each...

Question 19

Changes in enacted tax rates that do not become effective in the current period affect deferred tax accounts only after the new rates take effect.

Accepted Answer

A) True 
 B)False

Question 20

For classification purposes,a valuation allowance:

Accepted Answer

A) Is allocated proportionately between deferred tax assets and deferred tax liabilities. 
B) Is allocated proportionately between the current and noncurrent portions of the deferred tax asset. 
C) Is allocated proportionately between the current and noncurrent portions of the deferred tax liability. 
D) Is added to the deferred tax asset. 
A) Is allocated proportionately between deferred tax assets and deferred tax liabilities. 
B) Is allocated proportionately between the current and noncurrent portions of the deferred tax asset. 
C) Is allocated proportionately between the current and noncurrent portions of the deferred tax liability. 
D) Is added to the deferred tax asset.

The valuation allowance account that is used in conjunction with deferred tax assets is a(n):

Sometimes a temporary difference will produce future deductible amounts.Explain what is meant by future deductible amounts.Describe at least one situation that has this effect.How are future deductible amounts recognized in the financial statements?

The valuation allowance account that is used in conjunction with deferred taxes relates:

When a new tax rate is enacted,what adjustment,if any,is made to the retained earnings account as a result of the change?

Which of the following statements is true as to GAAP regarding accounting for income taxes,and its use of the asset and liability approach?

Bumble Bee Co.had taxable income of $7,000,MACRS depreciation of $5,000,book depreciation of $2,000,and accrued warranty expense of $400 on the books although no warranty work was performed.What is Bumble Bee's pretax accounting income?

During the current year,Stern Company had pretax accounting income of $45 million.Stern's only temporary difference for the year was rent received for the following year in the amount of $15 million.Stern's taxable income for the year would be:

Financial statement disclosure of the components of income tax expense:

Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset?

Deferred tax assets and liabilities typically are classified as current or long term according to when the underlying temporary difference is expected to reverse.

A reconciliation of pretax financial statement income to taxable income is shown below for Fieval Industries for the year ended December 31,2016,its first year of operations.The income tax rate is 40%. What amount(s)should Fieval report related to deferred income taxes in its 2016 balance sheet?

Changes in enacted tax rates that do not become effective in the current period affect deferred tax accounts only after the new rates take effect.

For classification purposes,a valuation allowance:

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, comprehensive Income, and the Statement of Cash Flows

Income Measurement

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, plant, and Equipment and Intangible Assets: Utilization and Impairment

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes

The Statement of Cash Flows

Filters

Exam 16: Accounting for Income Taxes

The valuation allowance account that is used in conjunction with deferred tax assets is a(n):

Sometimes a temporary difference will produce future deductible amounts.Explain what is meant by future deductible amounts.Describe at least one situation that has this effect.How are future deductible amounts recognized in the financial statements?

The valuation allowance account that is used in conjunction with deferred taxes relates:

When a new tax rate is enacted,what adjustment,if any,is made to the retained earnings account as a result of the change?

Which of the following statements is true as to GAAP regarding accounting for income taxes,and its use of the asset and liability approach?

Bumble Bee Co.had taxable income of $7,000,MACRS depreciation of $5,000,book depreciation of $2,000,and accrued warranty expense of $400 on the books although no warranty work was performed.What is Bumble Bee's pretax accounting income?

During the current year,Stern Company had pretax accounting income of $45 million.Stern's only temporary difference for the year was rent received for the following year in the amount of $15 million.Stern's taxable income for the year would be:

Financial statement disclosure of the components of income tax expense:

Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset?

Deferred tax assets and liabilities typically are classified as current or long term according to when the underlying temporary difference is expected to reverse.

A reconciliation of pretax financial statement income to taxable income is shown below for Fieval Industries for the year ended December 31,2016,its first year of operations.The income tax rate is 40%. What amount(s)should Fieval report related to deferred income taxes in its 2016 balance sheet?

Changes in enacted tax rates that do not become effective in the current period affect deferred tax accounts only after the new rates take effect.

For classification purposes,a valuation allowance:

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, comprehensive Income, and the Statement of Cash Flows

Income Measurement

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, plant, and Equipment and Intangible Assets: Utilization and Impairment

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes

The Statement of Cash Flows

Filters