Exam 19: Accounting for Income Taxes

On December 31,2015,The Magic Flute Company reports liabilities with a tax basis of $800,000 and a book basis of $600,000.There was no difference in the asset basis.The difference in liability basis arose from temporary differences that would reverse in the following years: Assuming a tax rate of 35% for 2015 - 2017 and a rate of 40% for 2018 - 2020,The Magic Flute Co.should report a deferred tax ________ in the amount of ________ on December 31,2015.

The adjustment for a change in tax rates is treated as a change in accounting estimate.

Discuss the relationship between temporary differences,the statutory and effective tax rate.

TLR Productions reported income before taxes of $175,000 for the years 2013,2014,and 2015.In 2016 they experienced a loss of $300,000.TLR had a tax rate of 25% in 2013 and 2014,and a rate of 35% is 2015 and 2016.Assuming the company uses the carryback provisions for the net operating loss,what amount should be reported as Income Tax Refund Receivable in 2016?

A deferred tax asset represents a future reduction in income taxes payable.

The Wolf Group recorded a deferred tax asset of $50,000 due to a basis difference in warranty liabilities.Management has assessed that it is more likely than not that the firm will not realize 30% of the deferred tax asset.After recording the valuation allowance,Wolf's net income will ________ and assets will ________.

When will a company remeasure deferred tax accounts?

Book income refers to the amount of income reported on a company's tax return.

Tommy Corp.reported a net deferred tax asset balance of $185,000 resulting from an estimated warranty expense accrual for book purposes.The total book-tax difference related to the bases of the estimated warranty liability is $500,000.The enacted statutory tax rate related to this balance changed from 37% to 32%,effective immediately.By what amount will the deferred asset balance change?

A deferred tax asset exists when ________.

Muckingjay Inc.opened in 2015.The company reported sales revenue of $486,000 and expenses of $574,000.The revenue is on account,and no cash has been received or paid out for expenses.There are no permanent or temporary differences,so the book loss and taxable loss will be the same.Muckingjay plans on carrying forward the net operating loss (NOL).The company has a 38% tax rate,and a valuation allowance is not required. Prepare the following for 2015: a)The necessary journal entry to record the NOL carryforward. b)A partial income statement beginning with sales revenue.

Accounting for uncertain tax positions under IFRS involves all of the following except ________.

On December 31,2015,Big Bear Corporation reports liabilities with a tax basis of $1,000,000 and a book basis of $1,300,000.There was no difference in the asset basis.The difference in liability basis arose from temporary differences that would reverse in the following years: Assuming a tax rate of 30% for 2015 - 2018 and a rate of 35% for 2019 - 2020,what should Big Bear report on its balance sheet on December 31,2015?

The amount of income a company reports in its financial statements is known as ________.

Gustav,Inc.uses the accrual basis to account for all sales transactions.Sales for 2015 total $500,000.Included in this amount is $75,000 in receivables from sales on installment.Installment sales are considered revenue for book purposes,but not for tax purposes.Operating expenses total $150,000 and are treated the same for book and tax purposes. Complete the following: a.What is the book basis of the installment sales receivable? b.What is the tax basis of the installment sales receivable? c.Assuming a 30% tax rate,compute income tax expense,the deferred tax provision,and income tax payable for 2015. d.Prepare the journal entry to record the 2015 income tax expense.

A company may carry back a tax loss for ________ years and carry forward a tax loss for ________ years.

Piper,Inc.reported a net deferred tax asset balance of $190,000 resulting from an estimated warranty expense accrual for book purposes.The total book-tax difference related to the bases of the estimated warranty liability is $475,000.The enacted statutory tax rate related to this balance changed from 40% to 35%,effective immediately.What journal entry will Piper need to make to adjust for this change in tax rates?

Under U.S.GAAP,if a firm writes down inventory for obsolescence,which of the following is created?

Clunker Car Corporation reported a $3 million contingent liability on its 2015 financial statements from a lawsuit over faulty ignition switches.The tax rate for 2015 is 40%; however the enacted tax rates for the following three years is 37%,35%,and 33% respectively. How will the deferred tax asset be measured if the case is resolved in 2016? How will it be measured if the case is resolved in 2018? What accounts for this difference?

Red Lantern Corp.reported a net deferred tax asset balance of $247,000 resulting from an estimated warranty expense accrual for book purposes.The enacted statutory tax rate related to this balance changed from 38% to 32%,effective immediately.Prepare the necessary journal entry to account for this change in tax rates.