Exam 6: Accounting for Income Taxes

Which of the following statements concerning the classification of deferred tax assets and liabilities is true?

Green Corporation reported pretax book income of $1,000,000.During the current year,the net reserve for warranties increased by $25,000.In addition,tax depreciation exceeded book depreciation by $100,000.Finally,Green subtracted a dividends received deduction of $25,000 in computing its current year taxable income.Using a tax rate of 34%,Green's cash tax rate is:

Cardinal Corporation reported pretax book income of $3,000,000.During the current year,the reserve for bad debts increased by $200,000.In addition,book depreciation exceeded tax depreciation by $100,000.Cardinal sold a fixed asset and reported a book gain of $60,000 and a tax gain of $80,000.Finally,Cardinal deducted $50,000 of domestic production activities deduction on its tax return.Using a tax rate of 34%,compute Cardinal's current income tax expense or benefit.

Which of the following statements is true?

ASC 740 applies to accounting for state and local and international income taxes as well as federal income taxes.

Whitman Corporation reported pretax book income of $400,000 in 2017.Book depreciation exceeded tax depreciation by $100,000.In addition,the Company accrued vacation pay of $50,000 that was not deductible until paid in 2018.Whitman has a net operating loss carryforward of $200,000 from 2016.Assuming a tax rate of 34%,compute the Company's deferred income tax expense or benefit for 2017.

Temporary differences create either a deferred tax asset or a deferred tax liability.

ASC 740 permits a corporation to net its deferred tax assets and deferred tax liabilities regardless of the jurisdiction in which they arise.

Brown Corporation reports $100,000 of gain from the sale of land on its income statement.For tax purposes,Brown uses the installment method and reports gain of $10,000.The $90,000 difference in the gain reported is a deductible temporary difference.

Which of the following temporary differences creates a deferred tax liability?

Price Corporation reported pretax book income of $600,000 in 2017.Tax depreciation exceeded book depreciation by $100,000.In addition,the reserve for warranties increased by $40,000.Price 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,the company's tax rate decreased from 34% to 30%.Compute the Company's current and deferred income tax expense or benefit for 2017.

Which of the following statements is true?

Which of the following items is NOT a reconciling item in the income tax footnote?

What confidence level must management have that a tax position will be sustained on audit before it can recognize any portion of the related deferred tax asset under ASC 740?

Which of the following items does not result in a permanent difference?

DeWitt Corporation reported pretax book income of $800,000.Tax depreciation exceeded book depreciation by $400,000.In addition,the company received $100,000 of tax-exempt municipal bond interest.DeWitt used a net operating loss carryover of $200,000 to offset taxable income in the current year.Compute DeWitt's book equivalent of taxable income.Use this number to compute DeWitt's total income tax provision or benefit for the current year,assuming a tax rate of 34%.

Potter,Inc.reported pretax book income of $5,000,000.During the current year,the reserve for bad debts increased by $100,000.In addition,tax depreciation exceeded book depreciation by $300,000.Potter sold a fixed asset and reported book gain of $60,000 and tax gain of $80,000.Finally,the company received $50,000 of tax-exempt municipal bond interest.Using a tax rate of 34%,compute Potter's deferred income tax expense or benefit.

For 2017,Manchester Corporation recorded the following deferred tax assets and liabilities: The current deferred tax accounts and the noncurrent deferred tax liabilities result from temporary differences that relate to the company's U.S.operations.The noncurrent deferred tax asset relates to the company's German operations.Manchester wants to minimize the number of deferred tax accounts it reports on the balance sheet.What is the minimum number of deferred tax accounts Manchester can report on its balance sheet and what are the names and dollar amounts in each account?

Frost Corporation reported pretax book income of $3,000,000.Included in the computation were favorable temporary differences of $200,000,unfavorable temporary differences of $350,000,and unfavorable permanent differences of $50,000.Using a tax rate of 34%,compute Frost's deferred income tax expense or benefit.

TarHeel Corporation reported pretax book income of $1,000,000.During the current year,the net reserve for warranties increased by $25,000.In addition,tax depreciation exceeded book depreciation by $100,000.Finally,TarHeel subtracted a dividends received deduction of $25,000 in computing its current year taxable income.Assume a tax rate of 34%.TarHeel's accounting effective tax rate is: