Exam 6: Accounting for Income Taxes

Which of the following items is not a temporary difference?

Which of the following statements best describes "book equivalent of taxable income" (BETI)?

Which of the following statements is true with respect to a company's effective tax rate reconciliation?

As part of its uncertain tax position assessment, Madison Corporation records interest and penalties related to its unrecognized tax benefits of $1,000,000. Which of the following statements about recording this amount is most correct?

Which of the following taxes would not be accounted for under ASC 740?

Which of the following statements concerning the classification of deferred tax assets and liabilities is false?

Which of the following statements about ASC 740 as it relates to uncertain tax positions is true?

Which of the following statements is true?

ASC 740 deals with accounting for uncertain tax positions.

Which of the following items is not a permanent book/tax difference?

Stone Corporation reported pretax book income of $1,000,000 in 2016. Tax depreciation exceeded book depreciation by $300,000. In addition, the reserve for bad debts decreased by $50,000. Stone had a net deferred tax asset of $29,000 at the beginning of the year, representing a net deductible temporary difference of $100,000. During the year, the company's tax rate increased from 29% to 30%. Compute the Company's current and deferred income tax expense or benefit for 2016.

Temporary differences that are cumulatively "favorable" are defined as taxable temporary differences.

Which of the following items is not a reconciling item in the income tax footnote?

A corporation evaluates the need for a valuation allowance by comparing both positive and negative evidence that the corporation will realize a deferred tax asset in the future.

Weaver Company had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000. During the year, Weaver reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000 and unfavorable temporary differences of $20,000. During the year, the company's tax rate decreased from 34% to 30%. Weaver's deferred income tax expense or benefit for the current year would be:

Milton Corporation reported pretax book income of $2,500,000. Included in the computation were favorable temporary differences of $400,000, unfavorable temporary differences of $150,000, and favorable permanent differences of $100,000. Using a tax rate of 34%, compute Milton's deferred income tax expense or benefit.

A company's effective tax rate can best be described as:

A cumulative financial accounting (book) loss over three years likely would be considered significant negative evidence in a valuation allowance analysis.

Price Corporation reported pretax book income of $600,000 in 2016. Tax depreciation exceeded book depreciation by $100,000. In addition, the reserve for warranties increased by $40,000. Price had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000. During the year, the company's tax rate decreased from 34% to 30%. Compute the Company's current and deferred income tax expense or benefit for 2016.

The tax effects of permanent differences are always reported solely in a company's computation of its effective tax rate. Some permanent differences (excess windfall benefits from NQO deductions) show up in shareholders' equity.