Exam 16: Accounting for Income Taxes

A company earns $490,000 in pre-tax income,while its tax return shows taxable income of $380,000.At a tax rate of 35%,how much is the income tax expense under the taxes payable method permitted under ASPE?

Which statement is correct?

What is an "originating difference"?

Describe what is meant by a permanent difference.

During its first year of operations,Keen Corp.reported the following information: ∙ Income before income taxes for the year was $650,000 and the tax rate was 25%. ∙ Depreciation expense was $200,000 and CCA was $100,000.The carrying amount of property,plant,and equipment at the end of the year was $720,000,while UCC was $820,000. ∙ Warranty expense was reported at $110,000,while actual cash paid out was $60,000. ∙ $15,000 of expenses included in income were not deductible for tax purposes. ∙ No other items affected deferred tax amounts besides these transactions. Required: a.Prepare the journal entries to record income tax expense for the year. b.Assume Keen reported a loss instead of income in its first year of operations.Explain what accounting policy choices are available to Keen to record the tax implications of the loss,and provide a recommendation.

Match the following terms with their definitions.

A company has income before tax of $350,000,which includes a permanent difference of $65,000 relating to non-taxable dividend income.There are no other permanent or temporary differences.The income tax rate is 45%. Required: Compute the amount of taxes payable and income tax expense.

The following summarizes information relating to Gonzalez Corporation's operations for the current year. Required: Compute the amount of taxes payable and income tax expense for Gonzalez Corporation.

Which statement is correct about the "taxes payable method"?

How much tax would be reported under the taxes payable method for F2018?

What is the deferred tax liability under the deferral method for FY2017?

A company earns $390,000 in pre-tax income,while its tax return shows taxable income of $280,000.At a tax rate of 35%,how much is the income tax expense under the taxes payable method permitted under ASPE?

Explain why a company should carry back losses and why a company might choose to carry losses forward instead.

A company has a deferred tax liability of $120,000 at the beginning of the fiscal year relating to a taxable temporary difference of $300,000.The current year tax rate is 20%. Required: Provide the journal entry to reflect the tax rate change.

Which statement is accurate?

In the first year of operations,a company reports taxable income of $125,000 and paid $31,250 of income taxes.It is now the end of the second year,and the company has a loss of $175,000 for tax purposes.The company's management believes it is probable the company will be able to use up its tax losses.The tax rate is currently 40%. Required: Compute the amounts of income tax receivable and/ or deferred income tax asset in the current (second)year.

A company has a deferred tax liability of $20,000 at the beginning of the fiscal year relating to a taxable temporary difference of $80,000.The current year tax rate is 20%. Required: Provide the journal entry to reflect the tax rate change.

In the first two years of operations,a company reports taxable income of $125,000 and $165,000,respectively.In the first two years,the tax rates were 44% and 48% respectively.It is now the end of the third year,and the company has a loss of $260,000 for tax purposes.The company carries losses to the earliest year possible.The tax rate is currently 25%. Required: a.How much tax was paid in year 1 and year 2? b.Compute the amount of income tax payable or receivable in the current (third)year.

In 2017,Graham Cracker Co.sells a building with a cost of $10 million and undepreciated capital cost (UCC)of $5 million for tax purposes.For financial reporting,the building has carrying amount of $7 million.The sale price of the building is $3 million.Aside from the sale of the building,the company has other income (before taxes)of $5 million.There are no other permanent or temporary differences.The company faces an income tax rate of 30%. Required: Provide the journal entries for the company for 2017.

Why is it necessary to distinguish permanent differences from temporary differences?