Exam 14: Taxes on the Financial Statements

A deferred tax liability represents a current tax liability associated with income or expense to be reported in future year GAAP financial statements.

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

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.

Morrisson,Inc. ,earns book net income before tax of $500,000.In computing its book income,Morrisson deducts $50,000 more in warranty expense for book purposes than is allowed for tax purposes.Morrisson records no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 35% and no valuation allowance is required,what is Morrisson's current income tax expense reported on its GAAP financial statements?

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?

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.

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)?