Exam 6: Revenue Recognition

In 2013,JMR Corp.set up a deferred income tax benefit of a tax loss carry forward as the probability of realization was greater than 50%.It is now the end of 2013 and management has determined that 50% of the benefit will not be realized.Management should:

Existing sufficient taxable permanent differences,which will result in taxable income,is one piece of evidence to support a more likely than not criteria.

Better matching is achieved when deferred income tax assets due to carry forwards are fully recognized in the year of the loss.

The following information for KEG Corporation is available: KEG applies its tax losses sequentially,that is,tax losses are carried back as far as possible.The taxes recovered for the year ended 2014 amounted to:

Net operating tax carry backs and carry forwards never result in a cash refund of prior taxes paid but may result in a reduction in taxes for subsequent years.

The following information for JMR Corporation is available: JMR applies its tax losses sequentially,that is,tax losses are carried back as far as possible.The taxes recovered for the year ended 2014 amounted to:

CJM provided the following data related to income tax allocation: The deferred income tax account showed a zero balance at the start of 2013.There was only one temporary difference,an expense,which was deductible for tax purposes in 2013,but was recorded for accounting purposes in 2014.There are no carry backs or carry forwards and no originating temporary differences in 2014.The journal entry to record the income tax consequences for 2014 would include a:

JMR Corp.incurred a loss in 20x15 after several years of taxable income.After the carry back,JMR still had losses to use up in the amount of $500,000.The applicable tax rate was 40%.In 20x16,the tax rate goes down to 38%.Assuming that losses have not been used but it is still probable that they will be used,prepare the journal entry to set up the deferred benefit in 20x15 and any other entries applicable to the deferred benefit.

Geisler Corp.provided you with the following information for the year ending December 31,2017: Net Income before taxes: $150,000 Depreciation (included in above)$90,000 CCA$250,000 The net book value of the capital assets was $1,100,000,and their UCC was $900,000 on January 1,2017. A temporary difference of $200,000 is reflected in an accumulated deferred income tax liability (DTL)balance of $90,000 at January 1,2017. There were no permanent differences. Taxable income in the three-year carry back period was $400,000.Tax losses are carried back as far as allowable by law. A tax rate of 45% applies to the current and previous years. As a result of the company's temporary differences,Geisler's 2017 statement of financial position would show:

XYZ Ltd.,a taxable Canadian corporation,reported the following revenues and expenses in these amounts for both taxes and financial reporting (the tax rate is 40%). What is income tax expense for the year?

How should a deferred income tax benefit of a tax loss carry forward be treated on a yearly basis?

All of the following are evidence to support recognition of a deferred income tax benefit except:

Disclosure related to tax loss carry forwards and carry backs include all of the following except:

A company that has sustained a tax loss during the year and is not able to carry it back may potentially do all of the following except:

In general,deferred income tax assets due to tax loss carry forwards only to the extent that they are likely to be realized.

MDB had a $1,200 temporary tax difference for deferred gross margin on instalment sales at the end of 2012.This temporary difference will reverse equally during 2013,2014,and 2015.The enacted corporate income tax rate is 25% and Parliament is discussing an increase in the corporate income tax rates for 2014 and 2015 to 35%.The deferred income tax liability related to this temporary difference at the end of 2013 would be:

All of the following are true regarding loss carry forwards except:

A company carrying back a loss must use the earliest year first.

VB Ltd.provided you with the following information: There are no temporary differences.The deferred income tax benefit of the loss carry forward was set up in 2015 as the probability of realization was greater than 50%.In 2016 a further loss of $140,000 was incurred.Management determined that they were still more likely than not to realize the loss.The tax rate for 2016 was 45%.What would be the carrying amount of the deferred income tax benefit/loss carry forward on the balance sheet at the end of 2016?

The amount of any unused tax losses must be disclosed on the face of the income statement.