Exam 16: Accounting for Income Taxes

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. -The nondeductible portion of travel and entertainment expenses.

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Operating loss carryforward

A deferred tax asset represents a:

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Deferred tax asset

Wayne Co. had a 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:

In LMC's 2018 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.

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 $500,000 and taxable income of $50,000,000. At the beginning of the current year, Pocus reported a deferred tax asset of $210,000 related to the difference in reporting warranty expense, its only temporary difference. The enacted tax rate is 40% each year. Required: Prepare the appropriate journal entry for Pocus to record the income tax provision for the current year. Show well-labeled computations to support the three amounts in your journal entry.

Of the following temporary differences, which one ordinarily creates a deferred tax asset?

A reconciliation of pretax financial statement income to taxable income is shown below for Chan Inc. for the year ended December 31, 2018, its first year of operations. The income tax rate is 40%. The inventory impairments relate to Chan's Columbian tax return. The depreciation relates to Chan's U.S. tax return. What amount(s) should Chan report related to deferred income taxes in its 2018 balance sheet?

The effect of a change in tax rates:

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?

Due to differences between depreciation reported in the income statement and depreciation deducted for tax purposes, Lucas Corp. has $2 million in temporary differences that will increase taxable income next year. Assuming that Lucas has no other temporary differences, deferred income taxes should be reported in this year's ending balance sheet as a:

MACRS depreciation typically creates deferred tax liabilities early in the life of an asset.

Two independent situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by temporary differences: The enacted tax rate is 40% for both situations. Required: For each situation determine the: (a.) Income tax payable currently. (b.) Deferred tax asset - balance at year-end. (c.) Deferred tax asset change dr or (cr) for the year. (d.) Deferred tax liability - balance at year-end. (e.) Deferred tax liability change dr or (cr) for the year. (f.) Income tax expense for the year.

Estimated employee compensation expenses earned during the current period but expected to be paid in the next period causes:

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. -Franklin's net income ($ in millions) is:

In its first four years of operations Peridot Jewelers reported the following operating income (loss) amounts: There were no other items affecting deferred income taxes in any year. In 2017, Peridot elected to carry back its operating loss. The enacted income tax rate was 40%. In its 2018 income statement, what amount should Peridot report as income tax expense?

In 2017, HD had reported a deferred tax asset of $90 million with no valuation allowance. At December 31, 2018, the account balances of HD Services showed a deferred tax asset of $120 million before assessing the need for a valuation allowance and income taxes payable of $80 million. HD determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized. HD made no estimated tax payments during 2018. What amount should HD report as income tax expense in its 2018 income statement?

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 carryforward.

Tobac Company reported an operating loss of $132,000 for financial reporting and tax purposes in 2018. The enacted tax rate is 40% for 2018 and all future years. Assume that Tobac elects a loss carryback. No valuation allowance is needed for any deferred tax assets. Taxable income, tax rates, and income taxes paid in Tobac's first four years of operations were as follows: Required: 1.) Prepare a compound journal entry to record Tobac's tax provision for the year 2018. Show well-labeled computations. 2.) Compute Tobac's net loss for 2018.