Exam 16: Accounting for Income Taxes

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.

Brady's listing of deferred tax assets and liabilities includes the following for operations in the tax jurisdictions of Tambura and Nileboo: - Brady files separate tax returns in Tambura and Nileboo. Brady's balance sheet would include the following disclosure of deferred tax assets and liabilities:

At the end of its first year of operations, Prince Charming Corporation had a current liability of $300,000 for unearned rent. This was the only difference between pretax accounting income and taxable income. Assume an income tax rate of 40%. Required: The tax liability from the tax return is $750,000. Prepare the journal entry to record income taxes for Prince Charming's first year of operations. Show well-labeled computations.

Which of the following circumstances creates a future deductible amount?

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. -Valuation allowance

Identify three examples of permanent differences between accounting income and taxable income.

At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A disclosure note reveals that the entire $400,000 will be recognized in the income statement in the next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a:

Patterson Development sometimes sells property on an installment basis. In those cases, Patterson reports income in its income statement in the year of the sale but reports installment income by the installment method on the tax return. Installment income in 2018 was $120 million, which Patterson expects to collect equally over the next four years. The tax rate is 30%, but based on an enacted law, is scheduled to become 40% in 2020. Patterson's pretax accounting income for the 2018 income statement was $530 million. Of this amount, $30 million is non-taxable revenue from proceeds of a life insurance policy. There were no differences between accounting income and taxable income other than those described above and no cumulative temporary differences existed at the beginning of the year. Required: 1. Prepare the appropriate journal entry to record Patterson's 2018 income taxes. Show calculations. 2. What is Patterson's 2018 net income?

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

An unrealized gain from marking an investment to fair value typically creates a deferred tax asset.

Clinton Corp. had the following pretax income (loss) over its first three years of operations: For each year there were no deferred income taxes and the tax rate was 40%. For its 2017 tax return, Clinton did not elect a net operating loss carryback. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2017. What was Clinton's income tax expense in 2018?

In 2018, Bodily Corporation reported $300,000 pretax accounting income. The income tax rate for that year was 30%. Bodily had an unused $120,000 net operating loss carryforward from 2016 when the tax rate was 40%. Bodily's income tax payable for 2018 would be:

Gore Company, organized on January 2, 2018, had pretax accounting income of $7,000,000 and taxable income of $10,000,000 for the year ended December 31, 2018. The 2018 tax rate was 40%. The only difference between book and taxable income is estimated warranty costs. Expected payments and scheduled enacted tax rates are as follows: Required: Prepare one compound journal entry to record Gore's provision for taxes for the year 2018.

If a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that:

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

What argument serves as the basis for the GAAP requirement that deferred taxes should be recognized for all temporary differences?