Exam 6: Accounting for Income Taxes

Lynch Company had a net deferred tax asset of $68,000 at the beginning of the year,representing a net taxable temporary difference of $200,000.During the year,Lynch reported pretax book income of $800,000.Included in the computation were favorable temporary differences of $20,000 and unfavorable temporary differences of $50,000.During the year,the company's tax rate decreased from 34% to 30%.Lynch's deferred income tax expense or benefit for the current year would be:

Acai Corporation determined that $5,000,000 of its R&D credit on its current year tax return was uncertain.Acai determined that there was a 40 percent chance of the credit being sustained on audit.Management made the following assessment of the company's potential tax benefit from the R&D credit and its probability of occurring. Under ASC 740,what amount of the tax benefit related to the R&D credit can Acai recognize in calculating its income tax provision in the current year?

Knollcrest Corporation has a cumulative book loss over the past 36 months.Which of the following statements best describes how this fact enters into the valuation allowance analysis?

Which of the following book-tax basis differences results in a deductible temporary difference?

Which of the following groups does not issue rules that apply to accounting for income taxes?

Yellow Rose Corporation reported pretax book income of $1,000,000.Tax depreciation exceeded book depreciation by $100,000.During the year Yellow Rose capitalized $50,000 into ending inventory under §263A.Capitalized inventory costs of $75,000 in beginning inventory were deducted as part of cost of goods sold on the tax return.Using a tax rate of 34%,compute Yellow Rose's taxes payable or refundable.

Which of the following items is not considered evidence in determining if a valuation allowance is necessary?

Which of the following items would likely not be included in the computation of a company's structural effective tax rate?

Irish Corporation reported pretax book income of $1,000,000 in 2017.Included in the computation were favorable temporary differences of $300,000,unfavorable temporary differences of $100,000,and favorable permanent differences of $200,000.Compute Irish's book equivalent of taxable income.Use this number to compute the company's total income tax provision or benefit for 2017,assuming a tax rate of 34%.

Which of the following statements about uncertain tax position disclosures is false?

Once determined,an unrecognized tax benefit under ASC 740 is not readjusted for subsequent events.

MAC,Inc.completed its first year of operations with a pretax loss of $300,000.The tax return showed a net operating loss of $500,000,which MAC will carryforward.The $200,000 book-tax difference results from excess tax depreciation over book depreciation.Management has determined that they should record a valuation allowance equal to the net deferred tax asset.Assuming a tax rate of 34%,prepare the journal entries to record the deferred tax provision and the valuation allowance.

Which of the following items is not a permanent book/tax difference?

Tax-exempt interest from municipal bonds is an example of a permanent book to tax difference.

ASC 740 requires a publicly traded company to disclose the components of its deferred tax assets and liabilities only if the amounts are considered to be:

Which of the following statements best describes "book equivalent of taxable income" (BETI)?

Milton Corporation reported pretax book income of $2,500,000.Included in the computation were favorable temporary differences of $400,000,unfavorable temporary differences of $150,000,and favorable permanent differences of $100,000.Using a tax rate of 34%,compute Milton's deferred income tax expense or benefit.

A corporation evaluates the need for a valuation allowance by comparing both positive and negative evidence that the corporation will realize a deferred tax asset in the future.

Sparrow Corporation reported pretax book income of $5,000,000.During the current year,the reserve for warranties increased by $300,000.In addition,tax depreciation exceeded book depreciation by $400,000.Finally,Sparrow received $50,000 of tax-exempt interest from municipal bonds.Using a tax rate of 34%,compute Sparrow's current income tax expense or benefit.

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.