Question 1

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

Accepted Answer

A)  Accumulated depreciation on a building 
B)  Accumulated amortization on a customer list (intangible with a five-year life) 
C)  Unearned revenue expected to be collected in the next 12 months 
D)  Deferred compensation expected to be paid in the next 12 months 
A)  Accumulated depreciation on a building 
B)  Accumulated amortization on a customer list (intangible with a five-year life) 
C)  Unearned revenue expected to be collected in the next 12 months 
D)  Deferred compensation expected to be paid in the next 12 months

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)  Income taxes paid to the German government. 
B)  Income taxes paid to the U.S. government. 
C)  Value-added taxes paid to the Swiss government. 
D)  Income taxes paid to the City of New York. 
A)  Income taxes paid to the German government. 
B)  Income taxes paid to the U.S. government. 
C)  Value-added taxes paid to the Swiss government. 
D)  Income taxes paid to the City of New York.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The tax effects of permanent differences always show up in a company's computation of its effective tax rate.

Accepted Answer

A) True 
 B)False

Question 6

Whitman Corporation reported pretax book income of $400,000 in 2014. 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 2015. Whitman has a net operating loss carryforward of $200,000 from 2013. Assuming a tax rate of 34%, compute the Company's deferred income tax expense or benefit for 2014.

Accepted Answer

$17,000 de

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

Accepted Answer

A) True 
 B)False

Question 9

Acai Corporation determined that $5,000,000 of its R&D credit on its current year tax return was uncertain. Acai determined that there was a 40 percent chance of the credit being sustained on audit. Management made the following assessment of the company's potential tax benefit from the R&D credit and its probability of occurring. $\begin{array}{lll}
\begin{array}{r}
\text { Potential Estimated }\
\text { Benefit (000s) } \
\hline \$ \mathbf{5,0 0 0 , 0 0 0} \
\mathbf{3,50 0 , 0 0 0} \
\mathbf{2,00 0 , 0 0 0} \
0
\end{array}
\begin{array}{c}
\text {Individual Probability}\
\text { of Occurring (\%) } \
\hline 05 \
15 \
35 \
25\
\end{array}
\begin{array}{c}
\text { Cumulative Probability } \
\text { of Occurring } \
\hline 05 \
20 \
55 \
100
\end{array}
\end{array}$ Under ASC 740, what amount of the tax benefit related to the R&D credit can Acai recognize in calculating its income tax provision in the current year?

Accepted Answer

The answer of Acai Corporation determined that $5,000,000 of its...

Question 10

A company's effective tax rate can best be described as:

Accepted Answer

A)  The company's cash taxes paid divided by taxable income 
B)  The company's cash taxes paid divided by net income from continuing operations 
C)  The company's financial statement income tax provision divided by taxable income 
D)  The company's financial statement income tax provision divided by net income from continuing operations 
A)  The company's cash taxes paid divided by taxable income 
B)  The company's cash taxes paid divided by net income from continuing operations 
C)  The company's financial statement income tax provision divided by taxable income 
D)  The company's financial statement income tax provision divided by net income from continuing operations

Question 11

Which of the following statements is true?

Accepted Answer

A)  Another name for a taxable temporary difference is an unfavorable difference 
B)  Another name for a taxable temporary difference is a favorable difference 
C)  Another name for a deductible temporary difference is a favorable difference 
D)  Another name for a deductible temporary difference is a permanent difference 
A)  Another name for a taxable temporary difference is an unfavorable difference 
B)  Another name for a taxable temporary difference is a favorable difference 
C)  Another name for a deductible temporary difference is a favorable difference 
D)  Another name for a deductible temporary difference is a permanent difference

Question 12

Tuna 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, Tuna subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Book equivalent of taxable income is:

Accepted Answer

A)  $1,125,000 
B)  $1,110,000 
C)  $1,015,000 
D)  $985,000 
A)  $1,125,000 
B)  $1,110,000 
C)  $1,015,000 
D)  $985,000

Question 13

Temporary differences that are cumulatively "favorable" are defined as taxable temporary differences.

Accepted Answer

A) True 
 B)False

Question 14

Smith Company reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000, unfavorable temporary differences of $20,000, and favorable permanent differences of $40,000. Using a tax rate of 34%, Smith's deferred income tax expense or benefit would be:

Accepted Answer

A)  Net deferred tax expense of $10,200 
B)  Net deferred tax benefit of $10,200 
C)  Net deferred tax expense of $23,800 
D)  Net deferred tax benefit of $23,800 
A)  Net deferred tax expense of $10,200 
B)  Net deferred tax benefit of $10,200 
C)  Net deferred tax expense of $23,800 
D)  Net deferred tax benefit of $23,800

Question 15

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:

Accepted Answer

A)  34% 
B)  33.15% 
C)  31.45% 
D)  30.6% 
A)  34% 
B)  33.15% 
C)  31.45% 
D)  30.6%

Question 16

Which of the following statements best describes the disclosure of a company's deferred tax assets and liabilities?

Accepted Answer

A)  All four categories of deferred tax accounts (current deferred tax assets and liabilities and noncurrent deferred tax assets and liabilities) must be separately disclosed in the balance sheet. 
B)  The four categories of deferred tax accounts can be netted and disclosed as one aggregate amount on the balance sheet. 
C)  Current deferred tax assets and liabilities and noncurrent deferred tax assets and liabilities can always be netted on the balance sheet. 
D)  Current deferred tax accounts and noncurrent deferred tax accounts can be netted on the balance sheet only if they arise in the same tax jurisdiction. 
A)  All four categories of deferred tax accounts (current deferred tax assets and liabilities and noncurrent deferred tax assets and liabilities) must be separately disclosed in the balance sheet. 
B)  The four categories of deferred tax accounts can be netted and disclosed as one aggregate amount on the balance sheet. 
C)  Current deferred tax assets and liabilities and noncurrent deferred tax assets and liabilities can always be netted on the balance sheet. 
D)  Current deferred tax accounts and noncurrent deferred tax accounts can be netted on the balance sheet only if they arise in the same tax jurisdiction.

Question 17

Which of the following statements is true with respect to a company's effective tax rate reconciliation?

Accepted Answer

A)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's net income from continuing operations. 
B)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's taxable income. 
C)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's book equivalent of taxable income. 
D)  The hypothetical tax expense is another name for the company's effective tax rate. 
A)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's net income from continuing operations. 
B)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's taxable income. 
C)  The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's book equivalent of taxable income. 
D)  The hypothetical tax expense is another name for the company's effective tax rate.

Question 18

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.

Accepted Answer

$61,200 de

Question 19

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

Accepted Answer

A)  Accelerated tax depreciation in excess of straight-line book depreciation 
B)  Interest income from a tax-exempt municipal bond 
C)  Dividend received deduction on the income tax return 
D)  Domestic manufacturing deduction on the income tax return 
A)  Accelerated tax depreciation in excess of straight-line book depreciation 
B)  Interest income from a tax-exempt municipal bond 
C)  Dividend received deduction on the income tax return 
D)  Domestic manufacturing deduction on the income tax return

Question 20

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%.

Accepted Answer

The answer of Izzo Company reported pretax net income from...

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

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

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

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

The tax effects of permanent differences always show up in a company's computation of its effective tax rate.

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

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

A company's effective tax rate can best be described as:

Which of the following statements is true?

Temporary differences that are cumulatively "favorable" are defined as taxable temporary differences.

Which of the following statements best describes the disclosure of a company's deferred tax assets and liabilities?

Which of the following statements is true with respect to a company's effective tax rate reconciliation?

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

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters

Exam 17: Accounting for Income Taxes

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

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

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

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

The tax effects of permanent differences always show up in a company's computation of its effective tax rate.

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

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

A company's effective tax rate can best be described as:

Which of the following statements is true?

Temporary differences that are cumulatively "favorable" are defined as taxable temporary differences.

Which of the following statements best describes the disclosure of a company's deferred tax assets and liabilities?

Which of the following statements is true with respect to a company's effective tax rate reconciliation?

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

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters