Exam 14: Taxes on the Financial Statements

Create, Inc., a domestic corporation, owns 90% of Vinyl, Ltd., a foreign corporation and Digital, Inc., a domestic corporation. Create also owns 60% of Record, Inc., a domestic corporation. Create receives no distributions from any of these corporations. Which of these entities' net income are included in Create's Federal tax return for the current year assuming Create elects to include all eligible entities in its consolidated Federal income tax return?

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(Multiple Choice)

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Question 1

Correct Answer:

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Wilde, Inc., reported the following results for the current year. Determine Wilde's taxable income for the current year. Identify any temporary or permanent booktax differences.

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(Essay)

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Question 2

Correct Answer:

Verified

Wilde reports net income before tax of $500,000 on its GAAP financial statement, but it must adjust this amount for book-tax differences. Tax depreciation in excess of book is a tax deduction not deducted for book purposes, and warranty expense is deductible for book purposes but not yet deductible for tax.
Both these items are temporary differences because they eventually reverse (with book depreciation eventually exceeding tax depreciation and the warranty expense ultimately deducted for tax when incurred). The municipal bond adjustment is a permanent difference because this income never is subject to Federal income tax.

In the "rate reconciliation" of GAAP tax footnotes, temporary booktax differences are reconciled between book income as if taxed at U.S. tax rates and the actual book income tax expense.

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(True/False)

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Question 3

Correct Answer:

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False

The income tax footnote to the GAAP financial statements includes a reconciliation of a corporation's hypothetical tax on book income to its book tax expense as if it were taxed in full at the applicable U.S. income tax rates.

(True/False)

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Question 4

South, Inc., earns book net income before tax of $400,000 in 2014. South acquires a depreciable asset in 2014, and first year tax depreciation exceeds book depreciation by $50,000. At the end of 2014, South's deferred tax liability account balance is $17,500. In 2015, South earns $500,000 book net income before tax, and its book depreciation exceeds tax depreciation by $20,000. South records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 35%, what is South's total income tax expense reported on its GAAP financial statements for 2015?

(Multiple Choice)

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Question 5

You are assisting LipidCo, a U.S. corporation subject to GAAP, to determine its current-year book expense for income taxes. The following represent the steps that you will take in making this computation. Put the steps into the correct order. A. Compute the deferred tax provision. B. Determine book income before income tax effects. C. Determine the current tax provision. D. Determine whether a valuation allowance is required, and apply or release it. E. Identify and measure temporary book-tax differences. F. Prepare the disclosures for the financial statement footnotes. G. Add/Subtract any permanent book-tax differences.

(Short Answer)

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Question 6

Which of the following items is not included in the income tax footnote for a publicly traded company?

(Multiple Choice)

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Question 7

Which of the following items are not included in the GAAP financial statement income tax footnote's effective tax rate reconciliation?

(Multiple Choice)

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Question 8

Amelia, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 34% corporate tax rate and no valuation allowance. Amelia, Inc.'s, gross deferred tax assets and liabilities at the beginning of Amelia's year are listed below. Amelia, Inc.'s, book income before tax is $25,200. Amelia records two permanent booktax differences. It earned $1,000 in tax-exempt municipal bond interest and $1,840 in nondeductible meals and entertainment expense. Determine the net deferred tax asset or net deferred tax liability at year end.

(Essay)

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Question 9

At the beginning of the year, Schrader, Inc., holds a net operating loss carryforward, and its balance sheet shows a related deferred tax asset of $500,000. At the end of the year, the balance in the deferred tax asset account has not changed, but Schrader's auditors want to record a $90,000 valuation allowance against this amount, because of a persistent downturn in Schrader's profitability. Develop the journal entry to record the valuation allowance.

(Essay)

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Question 10

The release of a valuation allowance may relate to a tax planning strategy adopted by the taxpayer that will produce taxable income in the future.

(True/False)

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Question 11

ASC 740 (FIN 48) addresses how an entity should report uncertain tax positions in their financial statements.

(True/False)

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Question 12

Black, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 35% corporate tax rate and no valuation allowance. Black, Inc.'s, gross deferred tax assets and liabilities at the beginning of Black's year are listed below. Black, Inc.'s, book income before tax is $6,000. Black records two permanent book-tax differences. It earned $250 in tax-exempt municipal bond interest, and it incurred $500 in nondeductible meals and entertainment expense. Provide the income tax footnote rate reconciliation for Black.

(Essay)

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Question 13

A valuation allowance reflects uncertainty that the taxpayer will be able to recover a deferred tax asset.

(True/False)

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Question 14

Beach, Inc., a domestic corporation, owns 100% of Mountain, Ltd., a manufacturing facility in Ireland. Mountain has no operations or activities in the United States. The U.S. tax rate is 35% and the Irish tax rate is 10%. For the current year, Beach earns $500,000 in taxable income. Mountain earns $300,000 in taxable income from its operations, pays $30,000 in taxes to Ireland, and makes no distributions to Beach. What is Beach's effective tax rate for GAAP book purposes, assuming that Beach does not make the permanent reinvestment assumption of ASC 740- 30 (APB 23)?

(Multiple Choice)

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Question 15

Which of the following taxes are included in the total income tax liability of a corporation reported on its Federal tax return?

(Multiple Choice)

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Question 16

Purple, Inc., a domestic corporation, owns 80% of Blue, Ltd., a foreign corporation and Yellow, Inc., a domestic corporation. Purple also owns 50% of Green, Inc., a domestic corporation. Purple receives no distributions from any of these corporations. Which of these entities' net income are included in Purple's Federal tax return for the current year assuming Purple elects to include all eligible entities in its consolidated Federal income tax return?

(Multiple Choice)

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Question 17

You are the tax adviser to a publicly traded U.S. corporation. How might you use a "benchmarking" analysis to begin your review of the entity's tax situation and planning opportunities?

(Essay)

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Question 18

Which of the following taxes are included in the total income tax expense of a corporation as reported on its GAAP financial statements?

(Multiple Choice)

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Question 19

In general, the purpose of ASC 740 (SFAS 109) is to compute and disclose the taxes payable by a business entity to state, local, Federal, and foreign governments, for the current year and all future years.

(True/False)

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Question 20

Showing 1 - 20 of 87

Wilde, Inc., reported the following results for the current year. Determine Wilde's taxable income for the current year. Identify any temporary or permanent booktax differences.

In the "rate reconciliation" of GAAP tax footnotes, temporary booktax differences are reconciled between book income as if taxed at U.S. tax rates and the actual book income tax expense.

The income tax footnote to the GAAP financial statements includes a reconciliation of a corporation's hypothetical tax on book income to its book tax expense as if it were taxed in full at the applicable U.S. income tax rates.

Which of the following items is not included in the income tax footnote for a publicly traded company?

Which of the following items are not included in the GAAP financial statement income tax footnote's effective tax rate reconciliation?

The release of a valuation allowance may relate to a tax planning strategy adopted by the taxpayer that will produce taxable income in the future.

ASC 740 (FIN 48) addresses how an entity should report uncertain tax positions in their financial statements.

A valuation allowance reflects uncertainty that the taxpayer will be able to recover a deferred tax asset.

Which of the following taxes are included in the total income tax liability of a corporation reported on its Federal tax return?

You are the tax adviser to a publicly traded U.S. corporation. How might you use a "benchmarking" analysis to begin your review of the entity's tax situation and planning opportunities?

Which of the following taxes are included in the total income tax expense of a corporation as reported on its GAAP financial statements?

In general, the purpose of ASC 740 (SFAS 109) is to compute and disclose the taxes payable by a business entity to state, local, Federal, and foreign governments, for the current year and all future years.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S: Corporations

Comparative Forms of Doing Business

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 14: Taxes on the Financial Statements

Wilde, Inc., reported the following results for the current year. Determine Wilde's taxable income for the current year. Identify any temporary or permanent book­tax differences.

In the "rate reconciliation" of GAAP tax footnotes, temporary book­tax differences are reconciled between book income as if taxed at U.S. tax rates and the actual book income tax expense.

The income tax footnote to the GAAP financial statements includes a reconciliation of a corporation's hypothetical tax on book income to its book tax expense as if it were taxed in full at the applicable U.S. income tax rates.

Which of the following items is not included in the income tax footnote for a publicly traded company?

Which of the following items are not included in the GAAP financial statement income tax footnote's effective tax rate reconciliation?

The release of a valuation allowance may relate to a tax planning strategy adopted by the taxpayer that will produce taxable income in the future.

ASC 740 (FIN 48) addresses how an entity should report uncertain tax positions in their financial statements.

A valuation allowance reflects uncertainty that the taxpayer will be able to recover a deferred tax asset.

Which of the following taxes are included in the total income tax liability of a corporation reported on its Federal tax return?

You are the tax adviser to a publicly traded U.S. corporation. How might you use a "benchmarking" analysis to begin your review of the entity's tax situation and planning opportunities?

Which of the following taxes are included in the total income tax expense of a corporation as reported on its GAAP financial statements?

In general, the purpose of ASC 740 (SFAS 109) is to compute and disclose the taxes payable by a business entity to state, local, Federal, and foreign governments, for the current year and all future years.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S: Corporations

Comparative Forms of Doing Business

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Wilde, Inc., reported the following results for the current year. Determine Wilde's taxable income for the current year. Identify any temporary or permanent booktax differences.

In the "rate reconciliation" of GAAP tax footnotes, temporary booktax differences are reconciled between book income as if taxed at U.S. tax rates and the actual book income tax expense.