Exam 16: Accounting for Income Taxes

In the first two years of operations,a company reports taxable income of $200,000 and $250,000,respectively.In these two years,the company paid $45,000 and $56,000,respectively,in income taxes.It is now the end of the third year,and the company has a loss of $420,000 for tax purposes.The company carries losses to the earliest year possible.The tax rate is currently 25%. Required: Compute the amount of income tax payable or receivable in the current (third)year.

For the year ended October 31,2018,NB Financial Group (National Bank)reported income before tax of $2,160 million and income tax expense of $274 million,for an effective tax rate of 12.7% ($274m / $2,160m).In the notes to the financial statements,NB's disclosures included the following information: Required: a.From NB's disclosures provided above,identify any permanent differences. b.In which direction did the tax rate change from 2017 to 2018? c.Refer to the line "Recovery of prior years' income taxes" in the above disclosures.What does this information imply about NB's treatment of tax losses in prior years?

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 30%. Required: Provide the journal entry to reflect the tax rate change.

When will there be recapture and a capital gain?

Which statement is true?

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

The following data represent the differences between accounting and tax income for Seafood Imports Inc. ,whose pre-tax accounting income is $650,000 for the year ended December 31.The company's income tax rate is 45%.Additional information relevant to income taxes includes the following. a.Capital cost allowance of $270,000 exceeded accounting depreciation expense of $160,000 in the current year. b.Rents of $25,000,applicable to next year,had been collected in December and deferred for financial statement purposes but are taxable in the year received. c.In a previous year,the company established a provision for product warranty expense.A summary of the current year's transactions appears below: For tax purposes,only actual amounts paid for warranties are deductible. d.Insurance expense to cover the company's executive officers was $6,800 for the year,and you have determined that this expense is not deductible for tax purposes. Required: Prepare the journal entries to record income taxes for Seafood Imports.

What is the income tax payable under the deferral method for FY2017?

What is the income tax payable under the deferral method for FY2018?

Using the following table,contrast the substantive differences between IFRS and ASPE for (a)the method of accounting for income taxes and (b)presentation and disclosure.

Withering Inc.began operations in 2015.Due to the untimely death of its founder,Edwin Delaney,the company was wound up in 2017.The following table provides information on Withering's income over the three years. The statutory income tax rate remained at 45% throughout the three years. Required: a.For each year and for the three years combined,compute the following: - income tax expense under the taxes payable method; - the effective tax rate (= tax expense / pre-tax income)under the taxes payable method; - income tax expense under the accrual method; - effective tax rate under the accrual method. b.Briefly comment on any differences between the effective tax rates and the statutory rate of 45%.

A company facing a 45% tax rate has calculated its taxable income for the year to be $2,100,000.It made installment payments during the year totalling $955,000;this amount has been recorded in an asset account as "income tax installments" Required: Prepare the journal entry to record the adjusting entry for income taxes at the end of the year under the taxes payable method.

Which of the following is true?

For each of the following differences between the amount of taxable income and income recorded for financial reporting purposes,compute the effect of each difference on deferred taxes balances on the balance sheet.Treat each item independently of the others.Assume a tax rate of 30%.

Describe what is meant by a timing difference.

At the beginning of the current fiscal year,Withering Corporation had a deferred income tax liability balance of $20,000,which relates to depreciable assets.During the year,Withering reported the following information: ∙ Income before income taxes for the year was $300,000 and the tax rate was 45%. ∙ Depreciation expense was $150,000 and CCA was $130,000. ∙ Unearned rent revenue was reported at $120,000.Rent revenue is taxable when the cash is received.There was no opening balance in the unearned rent revenue account at the beginning of the year. ∙ No other items affected deferred tax amounts other than these transactions. Required: Prepare the journal entry or entries to record income taxes for the year.

Indicate whether the item will result in a deductible temporary difference,taxable temporary difference or neither.

Why does the tax system appear to treat profits and losses asymmetrically?

Which statement is correct?

During its first year of operations,Karol Corp.reported the following information: ∙ Income before income taxes for the year was $550,000 and the tax rate was 35%. ∙ Depreciation expense was $100,000 and CCA was $50,000. ∙ Warranty expense was reported at $20,000,while actual cash paid out was $10,000. ∙ $25,000 of expenses included in income were not deductible for tax purposes. ∙ No other items affected deferred tax amounts besides these transactions. Required: Prepare the journal entries to record income tax expense for the year.