Exam 17: Accounting for Income Taxes

Marlin Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. Finally, Marlin subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Using a tax rate of 34%, Marlin's current income tax expense or benefit would be:

Farm Corporation reported pretax book loss of $500,000 in 2014. Tax depreciation exceeded book depreciation by $100,000. In addition, Farm received prepaid income of $50,000, which was included on its tax return but was not included in the book loss. Farm had $0 taxable income in 2013 and 2012. Assuming a tax rate of 34%, compute the Company's deferred income tax expense or benefit for 2014.

A corporation's effective tax rate as computed in its income tax note is the company's cash tax rate for the year.

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.

Bruin Company received a $100,000 insurance payment on the death of its company president. The company annually paid $1,000 of non-deductible insurance premiums on the policy. Bruin reported the insurance receipt as income and deducted the premium payments on its books. For ASC 740 purposes, the income and deduction are characterized as:

Grand River Corporation reported pretax book income of $500,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $10,000, and favorable permanent differences of $90,000. Assuming a tax rate of 34%, the Corporation's current income tax expense or benefit would be:

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

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:

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 carry forward. 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?

The Emerging Issues Task Force assists the FASB by providing guidance on the implementation of ASC 740 and other accounting pronouncements.

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

Stone Corporation reported pretax book income of $1,000,000 in 2014. Tax depreciation exceeded book depreciation by $300,000. In addition, the reserve for bad debts decreased by $50,000. Stone had a net deferred tax asset of $29,000 at the beginning of the year, representing a net deductible temporary difference of $100,000. During the year, the company's tax rate increased from 29% to 30%. Compute the Company's current and deferred income tax expense or benefit for 2014.

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

Which of the following taxes would not be accounted for under ASC 740?

Congress reduces the corporate tax rate from 35 percent to 25 percent effective in 2015. The tax rate change will affect only deferred tax assets and liabilities that arise in 2015 and thereafter.

Which of the following statements is true?

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

Which of the following statements about ASC 740 as it relates to uncertain tax positions is true?

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