Exam 6: Accounting for Income Taxes

Izzo Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $800,000.The favorable book-tax difference of $200,000 was due to a $100,000 favorable temporary difference relating to depreciation,an unfavorable temporary difference of $50,000 due to accrued vacation pay,and a $150,000 favorable permanent difference from the domestic manufacturing deduction.Izzo Company's applicable tax rate is 34%. a.Compute Izzo Company's current income tax expense. b.Compute Izzo Company's deferred income tax expense or benefit. c.Compute Izzo Company's effective tax rate. d.Provide a reconciliation of Izzo Company's effective tax rate with its hypothetical tax rate of 34%.

Which of the following items is not a temporary difference?

Lafayette,Inc.completed its first year of operations with a pretax loss of $800,000.The tax return showed a net operating loss of $750,000,which the company will carryforward.The $50,000 book-tax difference results from a disallowed deduction for meals and entertainment.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 statements is true with respect to a company's effective tax rate reconciliation?

Potential interest and penalties that would be assessed on a disallowed unrecognized tax benefit must be recorded in a company's income tax expense under ASC 740.

Heron Corporation reported pretax book income of $4,000,000.Included in the computation were favorable temporary differences of $500,000,unfavorable temporary differences of $700,000,and unfavorable permanent differences of $200,000.Using a tax rate of 34%,compute Heron's current income tax expense or benefit.

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Which of the following statements is true?

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account.This basis difference is characterized as:

Robinson Company had a net deferred tax liability of $34,000 at the beginning of the year,representing a net taxable temporary difference of $100,000.During the year,Robinson reported pretax book income of $400,000.Included in the computation were favorable temporary differences of $50,000 and unfavorable temporary differences of $20,000.During the year,the company's tax rate increased from 34% to 35%.Robinson's deferred income tax expense or benefit for the current year would be:

Kedzie Company determined that the book basis of its liability for "other post-retirement benefits" (OPEB)exceeded the tax basis of this account by $10,000,000.This basis difference is characterized as:

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized.

Publicly-traded companies usually file their financial statements before they file their federal income tax returns.

In general,a temporary difference reflects a difference in the financial basis and tax basis of an asset or liability on the balance sheet.

Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

Assume Congress reduces the corporate tax rate from 35 percent to 25 percent effective in 2017.The tax rate change will affect only deferred tax assets and liabilities that arise in 2017 and thereafter.

A cumulative financial accounting (book)loss over three years likely would be considered significant negative evidence in a valuation allowance analysis.

The focus of ASC 740 is the income statement.

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.