Exam 2: Asset and Liability Valuation and Income Recognition

When income tax expense differs from income taxes currently payable on taxable income companies recognize deferred tax assets and deferred tax liabilities.What type of event would create a deferred tax asset and deferred tax liability?

Revenues and expenses that firms include in both net income to shareholders and in taxable income,but in different periods are referred to as _____________________________________________.

Deferred tax assets and liabilities are created due to temporary differences between the tax and financial reporting basis of certain assets and liabilities.Discuss which scenarios result in a deferred tax asset and which result in deferred tax liabilities.

The following problem requires present value information: Biotech sold a patent on a new blood analyzer to Pharma.The sales agreement which was signed on January 1,2009 requires Pharma to pay Biotech $1 million immediately.In addition,Pharma is required to pay $700,000 each December 31 for 20 years starting with December 31,2009.Pharma and Biotech judge that a 10 percent is an appropriate interest rate for this arrangement. a.Compute the present value of the receivable on Biotech's books on January 1,2009 immediately after receiving the $1 million down payment. b.Compute the present value of the receivable on Biotech's books on December 31,2009. c.Compute the present value of the receivable on Biotech's books on December 31,2010.

Valuation methods that reflect current values or a combination of historical and current values include all of the following except:

If a portfolio manager had to estimate the fair value of real estate,which of the following would he/she most likely identify as the level of inputs to determine this?

On December 31,2009,Loran Corporation reported a deferred tax liability totaling $12,000,resulting from depreciation timing differences pertaining to a depreciable asset purchased during 2009.Loran uses straight-line depreciation over four years for GAAP (book)purposes; for tax purposes,the depreciation deduction is 40% of cost during 2009,30% of cost during 2010,20% of cost during 2011,and 10% of cost during 2012.During 2010,Loran expensed $80,000of warranty costs that will be deducted for tax purposes in future years.Loran also accrued revenue totaling $135,000 which is taxable in 2011.Loran's GAAP (book)income before taxes during 2010 totaled $380,000The marginal income tax rate is 40% for all years. Required: (1)What is the taxable income? (2)Prepare the journal entry to record income tax expense for the year ended December 31,2010. 

H.Solo Company purchased a new piece of equipment with a list price of $175,000 and subject to a 5 percent discount if paid within 45 days.H.Solo paid within the discount period.The company also paid $1,500 to obtain title to the equipment and $600 as the license fee for the first year of operation.It paid $2,500 to level the area in which the equipment would be located and $12,500 to relocate other equipment that would have interfered with the proper operation of the new equipment.H.Solo paid $400 for property and liability insurance for the first year of operation.What is the acquisition cost of this equipment that H.Solo should record in its accounting records? Indicate the treatment of any amount not included in acquisition cost.

Future tax deductions:

For some transactions GAAP requires that value changes are recognized on the balance sheet and the income statement when they occur,even if not realized.Discuss what types of transactions get this type of treatment and the logic behind this accounting.

Present value methods are often used with receivables and liabilities:

When recognizing deferred tax assets and liabilities,the income statement approach and the balance sheet approach yield identical results:

Reporting financial assets and liabilities at fair values also is referred to as:

____________________ assets and liabilities represent amounts of cash a firm can expect to receive or pay in the future.

Firms use acquisition cost valuations and adjusted acquisition cost valuations for which of the following types of assets?

Relevant asset valuations refer to all of the following except:

If a portfolio manager had to estimate the fair value of illiquid mortgage-backed securities,which of the following would he/she most likely identify as the level of inputs to determine this?

________________________________________ is the net amount that a firm would receive if it sold an asset or the net amount it would have to pay to settle a liability.

The use of acquisition cost as a valuation method is justified on the basis that acquisition cost is:

Balance Sheet Equation Cash + Non-Cash = Liabilities + Contributed + Accumulated Other + Retained Assets Capital Comprehensive Earnings Income -Refer to Balance Sheet Equation.JCP Company purchased marketable securities for $5,000 during the year,at the end of the year the company revalues the securities to $5,700.This revaluation would result in an increase to non-cash assets and ____________________________________________________________.