Exam 14: Taxes on the Financial Statements

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 book-tax differences. It earned $1,000 in tax-exempt municipal bond interest and $1,840 in nondeductible meals and entertainment expense. Determine the change in Amelia's deferred tax assets for the current year.

A CFO probably prefers a tax planning strategy that produces a temporary book-tax difference to one that produces a permanent difference.

The IRS decides upon audit whether the taxpayer can claim the tax deferral benefits of ASC 740-30.

Van Dyke, Inc., hopes to report a total book tax expense of $150,000 in the current year. This amount consists of $200,000 in current tax expense and an $50,000 tax benefit related to the expected future use of an NOL by Van Dyke. If the auditors determine that a valuation allowance of $20,000 must be placed against Van Dyke's deferred tax assets, what is Van Dyke's total book tax expense?

Bryden Corporation is considering two tax planning strategies. Both would produce a $1 million tax savings. One of the strategies would structure the plan so that the $1 million would represent a temporary book-tax difference, while the other would generate a permanent difference. In general, which plan would the Bryden CFO prefer? A stock analyst reviewing the Bryden valuation?

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. What is Amelia's total provision for income tax expense reported on its financial statement and its book net income after tax?

Placard, a multinational corporation based in the U.S., has used ASC 740-30 (APB 23) to avoid reporting any U.S. deferred tax expense on $50 million of the earnings of its foreign subsidiaries. All of these subsidiaries operate in countries with lower tax rates than those of the U.S. When the profits eventually are repatriated, how is Placard's effective tax rate affected on its GAAP financial statements?