Question 1

Which statement is correct?

Accepted Answer

A)  A deductible temporary difference results in future taxable income being higher than accounting income. 
B)  A deductible temporary difference results in future taxable income being less than accounting income. 
C)  A deductible temporary difference refers to the amount of income tax payable in the current year. 
D)  A deductible temporary difference results from an event affecting accounting and taxable income in the same periods. 
A)  A deductible temporary difference results in future taxable income being higher than accounting income. 
B)  A deductible temporary difference results in future taxable income being less than accounting income. 
C)  A deductible temporary difference refers to the amount of income tax payable in the current year. 
D)  A deductible temporary difference results from an event affecting accounting and taxable income in the same periods.

Question 2

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.

Accepted Answer

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Question 3

Which accurately describes the purpose of the taxes payable method?

Accepted Answer

A)  It represents the amount of income recognized for accounting purposes. 
B)  It represents the amount of income recognized for tax purposes. 
C)  It calculates tax expense based on the accounting income before tax. 
D)  It calculates tax expense based on the amount payable to tax authorities. 
A)  It represents the amount of income recognized for accounting purposes. 
B)  It represents the amount of income recognized for tax purposes. 
C)  It calculates tax expense based on the accounting income before tax. 
D)  It calculates tax expense based on the amount payable to tax authorities.

Question 4

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.

Accepted Answer

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Question 5

Which of the following is true?

Accepted Answer

A)  A deductible temporary difference is a temporary difference that results in future taxable income being more than accounting income. 
B)  A Deferred Tax Liability is the amount of income tax payable in future deferred tax liability periods as a result of taxable permanent differences. 
C)  A Taxable Temporary Difference is a temporary difference that results in future taxable income being less than accounting income. 
D)  A deferred tax asset is the amount of income tax recoverable in future periods as a result of deductible temporary differences, losses carried forward, or tax credits carried forward. 
A)  A deductible temporary difference is a temporary difference that results in future taxable income being more than accounting income. 
B)  A Deferred Tax Liability is the amount of income tax payable in future deferred tax liability periods as a result of taxable permanent differences. 
C)  A Taxable Temporary Difference is a temporary difference that results in future taxable income being less than accounting income. 
D)  A deferred tax asset is the amount of income tax recoverable in future periods as a result of deductible temporary differences, losses carried forward, or tax credits carried forward.

Question 6

A company had taxable income of $2 million in fiscal 2017 and paid taxes of 0.6 million; the company incurred a loss of $7 million in fiscal 2018 when the tax rate is 50%.How much refund is the company entitled to?

Accepted Answer

A)  Nil 
B)  $0.6 million 
C)  $1.0 million 
D)  $3.5 million 
A)  Nil 
B)  $0.6 million 
C)  $1.0 million 
D)  $3.5 million

Question 7

Which statement is true?

Accepted Answer

A)  IAS 12 states the following: Deferred tax assets and liabilities shall be discounted. 
B)  Enterprises are expected to keep very detailed scheduling of the timing of the reversal of each temporary difference. 
C)  To permit, but not require discounting would result in deferred tax assets and liabilities which would be comparable between entities. 
D)  The rationale for not discounting is based on considerations of costs and benefits as well as comparability among enterprises. 
A)  IAS 12 states the following: Deferred tax assets and liabilities shall be discounted. 
B)  Enterprises are expected to keep very detailed scheduling of the timing of the reversal of each temporary difference. 
C)  To permit, but not require discounting would result in deferred tax assets and liabilities which would be comparable between entities. 
D)  The rationale for not discounting is based on considerations of costs and benefits as well as comparability among enterprises.

Question 8

ZEA Company started operations in 2017.The financial statements of ZEA reflected the following pre-tax amounts for its December 31 year-end:
   ZEA has a tax rate of 30% in 2017 and 35% in 2018,enacted in February each year.The unearned rent revenue represents cash received from a tenant that will be moving into the building February 15,2019.For tax purposes,any cash received for future rent is taxed when the cash is received.On July 1,2018 the company was fined $20,000 (included in other operating expenses)for violating a building code,this fine is not tax deductible.ZEA claimed CCA for tax purposes of $600,000 in 2017 and $700,000 in 2018.
Required:
a.Calculate the income tax expense for 2017 and 2018.
b.Calculate the weighted average number of ordinary shares outstanding in each of 2017,and 2018.
c.Calculate the basic EPS for each of 2017,and 2018.

Accepted Answer

a.Calculation of taxes payable:
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Question 9

What is the tax expense under the deferral method for FY2018?

Accepted Answer

A)  $27,500 
B)  $36,000 
C)  $36,750 
D)  $52,500 
A)  $27,500 
B)  $36,000 
C)  $36,750 
D)  $52,500

Question 10

In its first year of operations,a company reported taxable income of $200,000.In its second year the company incurred a $250,000 loss.During these first two years,the tax rates were 30% and 35% respectively.It is now the end of the third year,and the company a taxable income of $260,000.The company carries losses to the earliest year possible.The tax rate is currently 40%.The amount of income tax receivable or payable in the current (third)year is:

Accepted Answer

A)  $104,000 payable. 
B)  $27,500 receivable. 
C)  $76,500 payable. 
D)  $16,500 payable. 
A)  $104,000 payable. 
B)  $27,500 receivable. 
C)  $76,500 payable. 
D)  $16,500 payable.

Question 11

Describe what is meant by a timing difference.

Accepted Answer

A timing difference arises fro

Question 12

Why does Capital Cost Allowance (CCA)usually exceed the amount of depreciation for tax purposes?

Accepted Answer

Capital cost allowance (CCA)usually exce

Question 13

A company had taxable income of $12 million in fiscal 2016 and paid taxes of 4.8 million; the company incurred a loss of $7 million in fiscal 2017 when the tax rate is 50%.How much refund is the company entitled to?

Accepted Answer

A)  Nil 
B)  $2.8 million 
C)  $3.5 million 
D)  $4.8 million 
A)  Nil 
B)  $2.8 million 
C)  $3.5 million 
D)  $4.8 million

Question 14

Under the accrual method,what is the effect of the tax rate change in FY2019?

Accepted Answer

A)  Increase of 11,000. 
B)  Decrease of 11,000. 
C)  Decrease of 62,500. 
D)  Increase of 63,500. 
A)  Increase of 11,000. 
B)  Decrease of 11,000. 
C)  Decrease of 62,500. 
D)  Increase of 63,500.

Question 15

What is an "originating difference"?

Accepted Answer

A)  The net carrying amount of a capital asset or capital asset class for tax purposes in Canada. 
B)  A temporary item that narrows that gap between accounting and tax values of an asset or liability. 
C)  A temporary item that widens the gap between accounting and tax values of an asset or liability. 
D)  The terminology used for depreciation of capital assets under for tax purposes in Canada. 
A)  The net carrying amount of a capital asset or capital asset class for tax purposes in Canada. 
B)  A temporary item that narrows that gap between accounting and tax values of an asset or liability. 
C)  A temporary item that widens the gap between accounting and tax values of an asset or liability. 
D)  The terminology used for depreciation of capital assets under for tax purposes in Canada.

Question 16

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.

Accepted Answer

The loss of $420,000 can be carried back

Question 17

Which statement is not correct?

Accepted Answer

A)  The accrual method focuses on the balance sheet. 
B)  The deferral method focuses on the income statement. 
C)  The deferral method matches tax expense to the balance sheet. 
D)  The accrual and deferral methods are both tax allocation methods. 
A)  The accrual method focuses on the balance sheet. 
B)  The deferral method focuses on the income statement. 
C)  The deferral method matches tax expense to the balance sheet. 
D)  The accrual and deferral methods are both tax allocation methods.

Question 18

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.

Accepted Answer

The tax rate associated with t

Question 19

Which statement is correct?

Accepted Answer

A)  Undepreciated capital cost (UC
C)  is the net carrying amount of an asset or asset class for tax purposes. 
B)  A deductible temporary difference is a temporary difference that results in future taxable income being more than accounting income. 
C)  A terminal loss is the tax loss arising from the sale of an asset for proceeds above its undepreciated capital cost. 
D)  Recaptured depreciation is the taxable income recorded for the reversal of previous capital cost allowance when the sale proceeds of an asset are less than its undepreciated capital cost. 
A)  Undepreciated capital cost (UC
C)  is the net carrying amount of an asset or asset class for tax purposes. 
B)  A deductible temporary difference is a temporary difference that results in future taxable income being more than accounting income. 
C)  A terminal loss is the tax loss arising from the sale of an asset for proceeds above its undepreciated capital cost. 
D)  Recaptured depreciation is the taxable income recorded for the reversal of previous capital cost allowance when the sale proceeds of an asset are less than its undepreciated capital cost.

Question 20

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.

Accepted Answer

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Which statement is correct?

Which accurately describes the purpose of the taxes payable method?

Which of the following is true?

A company had taxable income of $2 million in fiscal 2017 and paid taxes of 0.6 million; the company incurred a loss of $7 million in fiscal 2018 when the tax rate is 50%.How much refund is the company entitled to?

Which statement is true?

What is the tax expense under the deferral method for FY2018?

Describe what is meant by a timing difference.

Why does Capital Cost Allowance (CCA)usually exceed the amount of depreciation for tax purposes?

A company had taxable income of $12 million in fiscal 2016 and paid taxes of 4.8 million; the company incurred a loss of $7 million in fiscal 2017 when the tax rate is 50%.How much refund is the company entitled to?

Under the accrual method,what is the effect of the tax rate change in FY2019?

What is an "originating difference"?

Which statement is not correct?

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 correct?

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.

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Equities

Complex Financial Instruments

Earnings Per Share

Pensions and Other Employee Future Benefits

Accounting for Leases

Statement of Cash Flows

Accounting Changes

Filters

Exam 6: Accounting for Income Taxes

Which statement is correct?

Which accurately describes the purpose of the taxes payable method?

Which of the following is true?

A company had taxable income of $2 million in fiscal 2017 and paid taxes of 0.6 million; the company incurred a loss of $7 million in fiscal 2018 when the tax rate is 50%.How much refund is the company entitled to?

Which statement is true?

What is the tax expense under the deferral method for FY2018?

Describe what is meant by a timing difference.

Why does Capital Cost Allowance (CCA)usually exceed the amount of depreciation for tax purposes?

A company had taxable income of $12 million in fiscal 2016 and paid taxes of 4.8 million; the company incurred a loss of $7 million in fiscal 2017 when the tax rate is 50%.How much refund is the company entitled to?

Under the accrual method,what is the effect of the tax rate change in FY2019?

What is an "originating difference"?

Which statement is not correct?

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 correct?

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.

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Equities

Complex Financial Instruments

Earnings Per Share

Pensions and Other Employee Future Benefits

Accounting for Leases

Statement of Cash Flows

Accounting Changes

Filters