Question 1

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

Accepted Answer

A)  ASC 740 deals with all tax benefits involving income and non-income taxes. 
B)  ASC 740 deals with whether a recognized income tax benefit will be realized. 
C)  ASC 740 deals with recognized tax benefits related to income tax positions claimed on a filed tax return. 
D)  ASC 740 deals with recognized tax benefits related to income tax positions regardless of whether the item is taken on a filed tax return. 
A)  ASC 740 deals with all tax benefits involving income and non-income taxes. 
B)  ASC 740 deals with whether a recognized income tax benefit will be realized. 
C)  ASC 740 deals with recognized tax benefits related to income tax positions claimed on a filed tax return. 
D)  ASC 740 deals with recognized tax benefits related to income tax positions regardless of whether the item is taken on a filed tax return.

Question 2

A corporation evaluates the need for a valuation allowance by comparing both positive and negative evidence that the corporation will realize a deferred tax asset in the future.

Accepted Answer

A) True 
 B)False

Question 3

Purple Rose Corporation reported pretax book income of $500,000. Tax depreciation exceeded book depreciation by $300,000. In addition, the company received $250,000 of tax-exempt life insurance proceeds. The prior year tax return showed taxable income of $100,000. Using a tax rate of 34%, compute Purple Rose's current income tax expense or benefit.

Accepted Answer

$17,000 cu

Question 4

As part of its uncertain tax position assessment, Madison Corporation records interest and penalties related to its unrecognized tax benefits of $1,000,000. Which of the following statements about recording this amount is most correct?

Accepted Answer

A)  Madison must record the expense separate from its income tax provision. 
B)  Madison can elect to include the expense as part of its income tax provision or record the expense separate from its income tax provision, provided the company discloses which option it chose. 
C)  Madison must record the expense in its income tax provision. 
D)  Madison does not record the expense until it is paid. 
A)  Madison must record the expense separate from its income tax provision. 
B)  Madison can elect to include the expense as part of its income tax provision or record the expense separate from its income tax provision, provided the company discloses which option it chose. 
C)  Madison must record the expense in its income tax provision. 
D)  Madison does not record the expense until it is paid.

Question 5

Knollcrest Corporation has a cumulative book loss over the past 36 months. Which of the following statements best describes how this fact enters into the valuation allowance analysis?

Accepted Answer

A)  The book loss is considered sufficient negative evidence that a valuation must be recorded. 
B)  The book loss is considered negative evidence that must be evaluated along with other evidence as to whether a valuation allowance should be recorded. 
C)  The book loss is not considered negative evidence because it relates to book income and not taxable income. 
D)  A cumulative book loss is considered negative evidence only after a period of 60 months. 
A)  The book loss is considered sufficient negative evidence that a valuation must be recorded. 
B)  The book loss is considered negative evidence that must be evaluated along with other evidence as to whether a valuation allowance should be recorded. 
C)  The book loss is not considered negative evidence because it relates to book income and not taxable income. 
D)  A cumulative book loss is considered negative evidence only after a period of 60 months.

Question 6

Publicly-traded companies usually file their financial statements before they file their federal income tax returns.

Accepted Answer

A) True 
 B)False

Question 7

Manchester 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}) $ The current deferred tax accounts and the non-current deferred tax liabilities result from temporary differences that relate to the company's U.S. operations. The non-current deferred tax asset relates to the company's German operations. Manchester wants to minimize the number of deferred tax accounts it reports on the balance sheet. What is the minimum number of deferred tax accounts Manchester can report on its balance sheet and what are the names and dollar amounts in each account?

Accepted Answer

$100,000 net current deferred

Question 8

Swordfish 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. In prior years, tax depreciation exceeded book depreciation by a cumulative amount of $500,000. Finally, Swordfish subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Using a tax rate of 34%, Swordfish's deferred income tax expense or benefit would be:

Accepted Answer

A)  $25,500 net deferred tax expense 
B)  $25,500 net deferred tax benefit 
C)  $42,500 net deferred tax benefit 
D)  $42,500 net deferred tax expense 
A)  $25,500 net deferred tax expense 
B)  $25,500 net deferred tax benefit 
C)  $42,500 net deferred tax benefit 
D)  $42,500 net deferred tax expense

Question 9

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

Accepted Answer

A)  A deferred tax asset is classified as noncurrent if the company expects the future tax benefit to be received more than 12 months from the balance sheet date. 
B)  A deferred tax asset related to a bad debt reserve is classified as noncurrent if the company expects the bad debt to be charged off more than 12 months from the balance sheet date. 
C)  A deferred tax asset related to a bad debt reserve is classified as current if the related accounts receivable is classified as a current asset. 
D)  A deferred tax asset related to inventory capitalization is classified as noncurrent if the company uses a FIFO accounting method and the inventory to which the deferred tax asset relates will not be treated as sold within 12 months from the balance sheet date. 
A)  A deferred tax asset is classified as noncurrent if the company expects the future tax benefit to be received more than 12 months from the balance sheet date. 
B)  A deferred tax asset related to a bad debt reserve is classified as noncurrent if the company expects the bad debt to be charged off more than 12 months from the balance sheet date. 
C)  A deferred tax asset related to a bad debt reserve is classified as current if the related accounts receivable is classified as a current asset. 
D)  A deferred tax asset related to inventory capitalization is classified as noncurrent if the company uses a FIFO accounting method and the inventory to which the deferred tax asset relates will not be treated as sold within 12 months from the balance sheet date.

Question 10

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as:

Accepted Answer

A)  Deductible temporary difference 
B)  Taxable temporary difference 
C)  Favorable permanent difference 
D)  Unfavorable permanent difference 
A)  Deductible temporary difference 
B)  Taxable temporary difference 
C)  Favorable permanent difference 
D)  Unfavorable permanent difference

Question 11

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:

Accepted Answer

A)  Both are taxable temporary differences 
B)  Both are deductible temporary differences 
C)  The insurance receipt is a favorable permanent difference and the premium payment is an unfavorable permanent difference 
D)  The insurance receipt is a taxable temporary difference and the premium payment is an unfavorable permanent difference 
A)  Both are taxable temporary differences 
B)  Both are deductible temporary differences 
C)  The insurance receipt is a favorable permanent difference and the premium payment is an unfavorable permanent difference 
D)  The insurance receipt is a taxable temporary difference and the premium payment is an unfavorable permanent difference

Question 12

ASC 740 governs how a company accounts for all taxes it incurs.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

Accepted Answer

A)  A publicly traded company should disclose the approximate "tax effect" (dollar amounts) of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
B)  A publicly traded company should disclose the approximate "tax effect" (dollar amounts) of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements. 
C)  A privately-held company should disclose the approximate "tax effect" (dollar amounts) of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
D)  A privately-held company should disclose the approximate "tax effect" (dollar amounts) of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements. 
A)  A publicly traded company should disclose the approximate "tax effect" (dollar amounts) of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
B)  A publicly traded company should disclose the approximate "tax effect" (dollar amounts) of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements. 
C)  A privately-held company should disclose the approximate "tax effect" (dollar amounts) of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. 
D)  A privately-held company should disclose the approximate "tax effect" (dollar amounts) of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements.

Question 15

The focus of ASC 740 is the income statement.

Accepted Answer

A) True 
 B)False

Question 16

In general, a temporary difference reflects a difference in the financial basis and tax basis of an asset or liability on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements best describes the objective(s) of ASC 740?

Accepted Answer

A)  To compute a corporation's current income tax liability or benefit. 
B)  To recognize deferred tax liabilities and assets. 
C)  To report permanent differences in the balance sheet. 
D)  To compute a corporation's current income tax liability or benefit and to recognize deferred tax liabilities and assets. 
A)  To compute a corporation's current income tax liability or benefit. 
B)  To recognize deferred tax liabilities and assets. 
C)  To report permanent differences in the balance sheet. 
D)  To compute a corporation's current income tax liability or benefit and to recognize deferred tax liabilities and assets.

Question 18

Which of the following statements is true?

Accepted Answer

A)  ASC 740 focuses on the income tax expense or benefit on the income statement 
B)  ASC 740 focuses on the balances in the deferred tax assets and liabilities on the balance sheet 
C)  ASC 740 focuses on the income taxes paid or refunded in the Statement of Cash Flows 
D)  ASC 740 focuses on the computation of a company's effective tax rate in the income tax note to the financial statements 
A)  ASC 740 focuses on the income tax expense or benefit on the income statement 
B)  ASC 740 focuses on the balances in the deferred tax assets and liabilities on the balance sheet 
C)  ASC 740 focuses on the income taxes paid or refunded in the Statement of Cash Flows 
D)  ASC 740 focuses on the computation of a company's effective tax rate in the income tax note to the financial statements

Question 19

Which of the following statements about uncertain tax position disclosures is false?

Accepted Answer

A)  ASC 740 requires a company to disclose the amount of unrecognized tax benefits for each country in which it files a tax return 
B)  ASC 740 requires a company to disclose the aggregate amount of unrecognized tax benefits, separated between U.S., state and local, and international tax positions 
C)  ASC 740 requires a company to disclose the aggregate amount of unrecognized tax benefits without separation between U.S., state and local, and international tax positions 
A)  ASC 740 requires a company to disclose the amount of unrecognized tax benefits for each country in which it files a tax return 
B)  ASC 740 requires a company to disclose the aggregate amount of unrecognized tax benefits, separated between U.S., state and local, and international tax positions 
C)  ASC 740 requires a company to disclose the aggregate amount of unrecognized tax benefits without separation between U.S., state and local, and international tax positions

Question 20

Which of the following items is not a temporary difference?

Accepted Answer

A)  Vacation pay accrued for tax purposes in a prior period is deducted in the current period 
B)  Tax depreciation for the period exceeds book depreciation 
C)  A goodwill impairment expense is recorded on the income statement; the goodwill did not have a tax basis when it was created 
D)  Bad debts charged off in the current period exceed the bad debts accrued in the current period 
A)  Vacation pay accrued for tax purposes in a prior period is deducted in the current period 
B)  Tax depreciation for the period exceeds book depreciation 
C)  A goodwill impairment expense is recorded on the income statement; the goodwill did not have a tax basis when it was created 
D)  Bad debts charged off in the current period exceed the bad debts accrued in the current period

Exam 17: Accounting for Income Taxes

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

A corporation evaluates the need for a valuation allowance by comparing both positive and negative evidence that the corporation will realize a deferred tax asset in the future.

As part of its uncertain tax position assessment, Madison Corporation records interest and penalties related to its unrecognized tax benefits of $1,000,000. Which of the following statements about recording this amount is most correct?

Knollcrest Corporation has a cumulative book loss over the past 36 months. Which of the following statements best describes how this fact enters into the valuation allowance analysis?

Publicly-traded companies usually file their financial statements before they file their federal income tax returns.

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

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as:

ASC 740 governs how a company accounts for all taxes it incurs.

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

Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

The focus of ASC 740 is the income statement.

In general, a temporary difference reflects a difference in the financial basis and tax basis of an asset or liability on the balance sheet.

Which of the following statements best describes the objective(s) of ASC 740?

Which of the following statements is true?

Which of the following statements about uncertain tax position disclosures is false?

Which of the following items is not a temporary 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

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