Exam 5: The Statement of Cash Flows

Company A had depreciation of $14,000 and CCA of $12,500 during its first year of operations.The tax rates for Years 1 and 2 were 25% and 20% respectively.The Year 2 tax rate was enacted in Year 1.At the end of year 1,this will result in:

At the end of 2014,the only expected future temporary difference is implied by the following account found in the balance sheet: The footnotes reveal that the prepaid rent applies only to 2015.You would also expect to find which of the following in the balance sheet:

The following information is available to you: Income before tax $1,540,000,depreciation,$309,000; CCA,$350,000; tax rate,40%.Prepare the journal entry to record taxes for the year.(Assume there are no previous tax differences.)

"Taxable amounts" include expenses and losses that are included in the tax return BEFORE they are recognized for accounting purposes.

If the enacted tax rate is changed for the current and future years,the earnings effect of the change in the beginning balances of the deferred tax assets is recognized in the current year.

Which of the following would result in a deferred tax asset?

The existence of deferred tax assets on the balance sheet is dependent on a company's going concern status.

ABC has taxable income of $5,000,deferred taxable amounts of $4,000,and future deductible amounts of $2,000 at the end of its first year of operations.Calculate ABC's pre-tax accounting income for this first year.

GFH had pre-tax accounting income of $5,600 during 2014.GFH used accelerated depreciation for tax purposes ($4,000)and straight-line depreciation for financial accounting purposes ($800).During 2014 GFH accrued warranty expenses of $3,600 and paid $2,000 cash to honour warranties.GFH's taxable income for 2014 would be (show calculations):

ABC Inc.purchased new machinery for $2 million on January 1^st,2014.For accounting purposes,the company depreciates all machinery on a straight-line basis (no salvage value)over a five year period.For tax purposes,CCA on all machinery is taken at a rate of 20%,with half a year's CCA taken in the year of acquisition.The tax rate for 2014 is 40%.The tax rate for years 2015 and later is 35%.Assume that all rates are enacted in the year to which they pertain.Using the shortcut approach,determine the deferred income tax asset or liability at the end of 2014.

The taxes payable method results in better matching than does the comprehensive allocation method.

Under the indirect method of preparing cash flows from operating activities,deferred income tax expense must be added back to net income.

Name two conditions necessary for a deferred tax liability to result in an actual cash outflow.

Income tax expense generally equals the product of the current period income tax rate and pre-tax accounting income.

Which of the following could never be subject to inter-period tax allocation?

A characteristic of the taxes payable method is that:

The use of inter-period income tax allocation is mandatory under ASPE.

Permanent differences are those that factor into the computation of both net income and taxable income.

Which of the following does not help in explaining why (1)and (2)are different: (1)Income tax expense (2)The product of pre-tax income and the current tax rate.

Under the liability approach,deferred taxes on the balance sheet are valued at the tax rate in that will be in effect when the temporary differences reverse.