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.

Yahr,Inc. ,is a domestic corporation with no subsidiaries.It operates in almost every U.S.state.Yahr records no permanent or temporary book-tax differences this year.Yahr's tax expense on its GAAP financial statements and its tax liability reported on its Federal income tax return are identical.

"Temporary differences" are book-tax income differences that eventually appear in both the financial statements and the income tax return,but not in the same reporting period.

Which of the following taxes are included in the total income tax expense of a corporation as reported on its 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.

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

Cold,Inc. ,reported a $100,000 total tax expense for financial statement purposes in 2012.This total expense consisted of $150,000 in current tax expense and a deferred tax benefit of $50,000.The deferred tax benefit consisted of $90,000 in deferred tax assets reduced by a valuation allowance of $40,000.In 2013,Cold reports $600,000 in book net income before tax.Cold records no other permanent or temporary book-tax differences.At the end of 2013,Cold's auditors determine that the existing valuation allowance of $40,000 should be reduced to zero.What is Cold's total tax expense for 2013?

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?

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

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.

How does an auditor determine whether a valuation allowance is needed against an entity's deferred tax asset? List some of the factors than an auditor will consider in this regard.

Collins,Inc. ,reports an effective tax rate in its income tax footnote of 14%.The only reconciling item with regard to the hypothetical tax at 35% is a valuation allowance reversal of negative 21%.Which of the following statements is true concerning comparing Collins,Inc.'s effective tax rate with its competitors,all of whom have an effective tax rate between 32 and 36%?

At the beginning of the year,Jensen 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 Jensen's auditors want to record a $100,000 valuation allowance against this amount,because of a persistent downturn in Jensen's profitability.Develop the journal entry to record the valuation allowance.

Which of the following statements best describes considerations regarding a company's tax expense that may be made by users of GAAP financial statements?

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

Create,Inc. ,a domestic corporation,owns 100% of Vinyl,Ltd. ,a foreign corporation and Digital,Inc. ,a domestic corporation.Create also owns 12% 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 income statement for current year financial reporting purposes?

Purple,Inc. ,a domestic corporation,owns 100% of Blue,Ltd. ,a foreign corporation and Yellow,Inc. ,a domestic corporation.Purple also owns 40% 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 GAAP income statement for current year financial reporting purposes?

Which of the following items represents a temporary book-tax difference?

Giant uses the "equity method" to account for the operations of its 40% owned subsidiary Little.A portion of Little's profits for the year are included in Giant's GAAP book income.

Schedule UTP of the Form 1120 reconciles financial statement net income after tax with a large corporation's taxable income.