Exam 14: Taxes on the Financial Statements

Phyllis,Inc. ,earns book net income before tax of $600,000.Phyllis puts into service a depreciable asset this year,and first year tax depreciation exceeds book depreciation by $120,000.Phyllis has recorded no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 35%,what is Phyllis's total income tax expense reported on its GAAP financial statements?

Larson,Inc. ,hopes to report a total book tax expense of $160,000 in the current year.This $160,000 expense consists of $240,000 in current tax expense and an $80,000 tax benefit related to the expected future use of an NOL by Larson.If the auditors determine that a valuation allowance of $30,000 must be placed against Larson's deferred tax assets,what is Larson's total book tax expense?

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.

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.

Bunker,Inc. ,is a domestic corporation.It owns 100% of Texas,Inc. ,a domestic corporation,100% of Paris,a foreign corporation,and 35% of Iowa,Inc. ,a domestic corporation.

If a valuation allowance is increased in the current year,the corporation's effective tax rate is less than if the valuation allowance had not increased.

Only U.S.corporations are included in a combined GAAP financial statement.

The operations of 80% or more owned domestic subsidiaries can be included in the parent corporation's consolidated tax return,if a proper election is made.

"Permanent differences" include items that appear in the Federal income tax return as income or deduction,and in the GAAP financial statements as revenue or expense,but in different reporting periods.

South,Inc. ,earns book net income before tax of $400,000 in 2012.South acquires a depreciable asset in 2012,and first year tax depreciation exceeds book depreciation by $50,000.At the end of 2012,South's deferred tax liability account balance is $17,500.In 2013,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 balance in its deferred tax liability account at the end of 2013?

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.

If a valuation allowance is decreased (released)in the current year,the corporation's effective tax rate is less than if the valuation allowance had not increased.

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.

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.

South,Inc. ,earns book net income before tax of $400,000 in 2012.South acquires a depreciable asset in 2012,and first year tax depreciation exceeds book depreciation by $50,000.At the end of 2012,South's deferred tax liability account balance is $17,500.In 2013,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 current income tax expense reported on its GAAP financial statements for 2013?

At the beginning of the year,the balance sheet of Jensen Inc. ,shows a $500,000 deferred tax asset relating to a net operating loss carryforward,offset by a $100,000 valuation allowance.At the end of the year,Jensen's auditors agree to release $40,000 of the allowance.Develop the journal entry to record this change in the valuation allowance.

Foreign entities owned at least 80% by the parent are included in a consolidated group's U.S.tax return.

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.

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?

PaintCo Inc. ,a domestic corporation,owns 100% of BrushCo Ltd. ,an Irish corporation.Assume that the U.S.corporate tax rate is 35% and the Irish rate is 10%.PaintCo is permanently reinvesting BrushCo's earnings outside the United States under ASC 740-30 (APB 23).The corporations' book income,permanent and temporary book-tax differences,and current tax expense are as follows.Provide the income tax footnote rate reconciliation for PaintCo using both dollar amounts and percentages.