Exam 6: Accounting for Income Taxes

In general, a temporary difference reflects a difference in the financial basis and tax basis of an asset or liability on the balance sheet.

DeWitt Corporation reported pretax book income of $800,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $100,000 of tax-exempt municipal bond interest. DeWitt used a net operating loss carryover of $200,000 to offset taxable income in the current year. Compute DeWitt's book equivalent of taxable income. Use this number to compute DeWitt's total income tax provision or benefit for the current year, assuming a tax rate of 34%.

Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

Weber Corporation reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $300,000, and unfavorable permanent differences of $200,000. Compute the Company's book equivalent of taxable income. Use this number to compute the Company's total income tax provision or benefit, assuming a tax rate of 34%.

Which of the following best describes the focus of ASC 740?

Which of the following statements is true?

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

ASC 740 is the sole source of rules related to accounting for income taxes. Other pronouncements also provide rules related to accounting for income taxes.

Which of the following groups does not issue rules that apply to accounting for income taxes?

A valuation allowance is recorded against a deferred tax asset when:

Assume Congress reduces the corporate tax rate from 35 percent to 25 percent effective in 2016. The tax rate change will affect only deferred tax assets and liabilities that arise in 2016 and thereafter. A corporation must adjust its existing deferred tax accounts as well.

ASC 740 requires a publicly traded company to disclose the components of its deferred tax assets and liabilities only if the amounts are considered to be:

Marlin Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. Finally, Marlin subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Using a tax rate of 34%, Marlin's current income tax expense or benefit would be:

Heron Corporation reported pretax book income of $4,000,000. Included in the computation were favorable temporary differences of $500,000, unfavorable temporary differences of $700,000, and unfavorable permanent differences of $200,000. Using a tax rate of 34%, compute Heron's current income tax expense or benefit.

Izzo Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $800,000. The favorable book-tax difference of $200,000 was due to a $100,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $50,000 due to accrued vacation pay, and a $150,000 favorable permanent difference from the domestic manufacturing deduction. Izzo Company's applicable tax rate is 34%. a. Compute Izzo Company's current income tax expense. b. Compute Izzo Company's deferred income tax expense or benefit. c. Compute Izzo Company's effective tax rate. d. Provide a reconciliation of Izzo Company's effective tax rate with its hypothetical tax rate of 34%.

Which of the following temporary differences creates a current deferred tax liability?

Which of the following statements about uncertain tax position disclosures is false?

Grand River Corporation reported pretax book income of $500,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $10,000, and favorable permanent differences of $90,000. Assuming a tax rate of 34%, the Corporation's current income tax expense or benefit would be:

Angel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Angel subtracted a dividends received deduction of $25,000 in computing its current year taxable income. Using a tax rate of 34%, Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

Swordfish Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. In prior years, tax depreciation exceeded book depreciation by a cumulative amount of $500,000. Finally, Swordfish subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Using a tax rate of 34%, Swordfish's deferred income tax expense or benefit would be: