Exam 17: Accounting for Income Taxes

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

Angel 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, Angel subtracted a dividends received deduction of $25,000 in computing its current year taxable income. Using a tax rate of 34%, Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

Lynch Company had a net deferred tax asset of $68,000 at the beginning of the year, representing a net taxable temporary difference of $200,000. During the year, Lynch reported pretax book income of $800,000. Included in the computation were favorable temporary differences of $20,000 and unfavorable temporary differences of $50,000. During the year, the company's tax rate decreased from 34% to 30%. Lynch's deferred income tax expense or benefit for the current year would be:

Which of the following items is not considered evidence in determining if a valuation allowance is necessary?

Oriole Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $1,200,000. The unfavorable book-tax difference of $200,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $300,000 due to an increase in the reserve for bad debts, and a $100,000 unfavorable permanent difference from the disallowance of compensation expense related to the exercise of incentive stock options. Oriole Company's applicable tax rate is 34%. a. Compute Oriole Company's current income tax expense. b. Compute Oriole Company's deferred income tax expense or benefit. c. Compute Oriole Company's effective tax rate. d. Provide a reconciliation of Oriole Company's effective tax rate with its hypothetical tax rate of 34%.

Moody Corporation recorded the following deferred tax assets and liabilities: Current deferred tax assets $\quad\quad\quad\quad\quad\$ 500,000$ Current deferred tax liabilities $\quad\quad\quad\quad(600,000)$ Non-current deferred tax assets $\quad\quad\quad\quad\mathbf{8 0 0 , 0 0 0}$ Non-current deferred tax liabilities $\quad\quad (\mathbf{2 , 0 0 0 , 0 0 0}$ Net deferred tax liabilities $\quad\quad\quad\quad\quad\$ \mathbf{1 , 3 0 0 , 0 0 0})$ All of the deferred tax accounts relate to temporary differences that result from the company's U.S. operations. Moody wants to minimize the number of deferred tax accounts it reports on the balance sheet. What is the minimum number of deferred tax accounts Moody can report on its balance sheet and what are the names and dollar amounts in each account?

Yellow Rose Corporation reported pretax book income of $1,000,000. Tax depreciation exceeded book depreciation by $100,000. During the year Yellow Rose capitalized $50,000 into ending inventory under §263A. Capitalized inventory costs of $75,000 in beginning inventory were deducted as part of cost of goods sold on the tax return. Using a tax rate of 34%, compute Yellow Rose's taxes payable or refundable.

Weaver Company 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, Weaver reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000 and unfavorable temporary differences of $20,000. During the year, the company's tax rate decreased from 34% to 30%. Weaver's deferred income tax expense or benefit for the current year would be:

Irish Corporation reported pretax book income of $1,000,000 in 2014. Included in the computation were favorable temporary differences of $300,000, unfavorable temporary differences of $100,000, and favorable permanent differences of $200,000. Compute Irish's book equivalent of taxable income. Use this number to compute the company's total income tax provision or benefit for 2014, assuming a tax rate of 34%.

Identify the following items as creating a temporary difference, permanent difference, or no difference. Item Temporary Difference Permanent Difference No Difference Reserve for bad debts Accrued other post-employment benefits Domestic production activities deduction Non-deductible fines and penalties Interest from municipal bonds Net operating loss carryover Stock option expense under ASC 718 Deferred compensation

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

Which of the following statements is true?

Morgan Corporation determined that $2,000,000 of its domestic production activities deduction on its current year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made the following assessment of the company's potential tax benefit from the deduction and its probability of occurring. Potential Estimated Benefit (000s) \ 0 Individual Probability of Occurring (\%) 20 25 30 15 Cumulative Probability of Occurring 20 55 85 100

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:

The "current income tax expense or benefit" always represents the taxes paid or refunded in the current year.

ASC 740 is the sole source of rules related to accounting for income taxes.

A valuation allowance is recorded against a deferred tax asset when:

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

Which of the following statements best describes "book equivalent of taxable income" (BETI)?

Costello Corporation reported pretax book income of $500,000. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, Costello received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Using a tax rate of 34%, Costello's deferred income tax expense or benefit would be: