Question 1

Which of the following items does not result in a permanent difference?

Accepted Answer

A)  Accelerated tax depreciation in excess of straight-line book depreciation 
B)  Interest income from a tax-exempt municipal bond 
C)  Dividend received deduction on the income tax return 
D) Domestic manufacturing deduction on the income tax return 
A)  Accelerated tax depreciation in excess of straight-line book depreciation 
B)  Interest income from a tax-exempt municipal bond 
C)  Dividend received deduction on the income tax return 
D) Domestic manufacturing deduction on the income tax return

Question 2

Yellow Rose Corporation reported pretax book income of $1,000,000. Tax depreciation exceeded book depreciation by $100,000. During the year Yellow Rose capitalized $50,000 into ending inventory under §263A. Capitalized inventory costs of $75,000 in beginning inventory were deducted as part of cost of goods sold on the tax return. Using a tax rate of 34%, compute Yellow Rose's taxes payable or refundable.

Accepted Answer

$297,500 current inc

Question 3

Cardinal Corporation reported pretax book income of $3,000,000. During the current year, the reserve for bad debts increased by $200,000. In addition, book depreciation exceeded tax depreciation by $100,000. Cardinal sold a fixed asset and reported a book gain of $60,000 and a tax gain of $80,000. Finally, Cardinal deducted $50,000 of domestic production activities deduction on its tax return. Using a tax rate of 34%, compute Cardinal's current income tax expense or benefit.

Accepted Answer

$1,111,800 current i

Question 4

Oriole Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $1,200,000. The unfavorable book-tax difference of $200,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $300,000 due to an increase in the reserve for bad debts, and a $100,000 unfavorable permanent difference from the disallowance of compensation expense related to the exercise of incentive stock options. Oriole Company's applicable tax rate is 34%.
a. Compute Oriole Company's current income tax expense.
b. Compute Oriole Company's deferred income tax expense or benefit.
c. Compute Oriole Company's effective tax rate.
d. Provide a reconciliation of Oriole Company's effective tax rate with its hypothetical tax rate of 34%.

Accepted Answer

@#IMG-DLM& Total income tax provision =

Question 5

Whitman Corporation reported pretax book income of $400,000 in 2016. Book depreciation exceeded tax depreciation by $100,000. In addition, the Company accrued vacation pay of $50,000 that was not deductible until paid in 2017. Whitman has a net operating loss carryforward of $200,000 from 2015. Assuming a tax rate of 34%, compute the Company's deferred income tax expense or benefit for 2016.

Accepted Answer

$17,000 deferred income tax ex

Question 6

Tuna 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, Tuna subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Book equivalent of taxable income is:

Accepted Answer

A)  $1,125,000 
B)  $1,110,000 
C)  $1,015,000 
D) $985,000 
A)  $1,125,000 
B)  $1,110,000 
C)  $1,015,000 
D) $985,000

Question 7

Potter, Inc. reported pretax book income of $5,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by $300,000. Potter sold a fixed asset and reported book gain of $60,000 and tax gain of $80,000. Finally, the company received $50,000 of tax-exempt municipal bond interest. Using a tax rate of 34%, compute Potter's deferred income tax expense or benefit.

Accepted Answer

$61,200 deferred income tax ex

Question 8

Purple Rose Corporation reported pretax book income of $500,000. Tax depreciation exceeded book depreciation by $300,000. In addition, the company received $250,000 of tax-exempt life insurance proceeds. The prior year tax return showed taxable income of $100,000. Using a tax rate of 34%, compute Purple Rose's current income tax expense or benefit.

Accepted Answer

$17,000 current inco

Question 9

Abbot Corporation reported pretax book income of $500,000. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, Abbot received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Using a tax rate of 34%, Abbot's current income tax expense or benefit would be:

Accepted Answer

A)  $186,320 
B)  $170,000 
C)  $157,080 
D) $153,680 
A)  $186,320 
B)  $170,000 
C)  $157,080 
D) $153,680

Question 10

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

Accepted Answer

A)  $231,200 
B)  $176,800 
C)  $170,000 
D) $108,800 
A)  $231,200 
B)  $176,800 
C)  $170,000 
D) $108,800

Question 11

Identify the following items as creating a temporary difference, permanent difference, or no difference.
 \[\begin{array} { | l | l | l | l | } 
\hline \text { Item } & \begin{array} { r } 
\text { Temporay } \
\text { Difference }
\end{array} & \begin{array} { r } 
\text { Permanent } \
\text { Difference }
\end{array} & \begin{array} { r } 
\text { No } \
\text { Difference }
\end{array} \
\hline \text { Reserve tor bad debts } & & & \
\hline \begin{array} { l } 
\text { Accrued other post- } \
\text { employment benefits }
\end{array} & & & \
\hline \begin{array} { l } 
\text { Domestic production } \
\text { activities deduction }
\end{array} & & & \
\hline \begin{array} { l } 
\text { Non-deductible fines } \
\text { and penalties }
\end{array} & & & \
\hline \begin{array} { l } 
\text { Interest trom municipal } \
\text { bonds }
\end{array} & & & \
\hline \begin{array} { l } 
\text { Net operating loss } \
\text { carryouer }
\end{array} & & & \
\hline \begin{array} { l } 
\text { Stock option expense } \
\text { under ASC } 718
\end{array} & & & \
\hline \begin{array} { l } 
\text { Deterred } \
\text { compensation }
\end{array} & & & \
\hline
\end{array}\]

Accepted Answer

The answer of Identify the following items as creating a...

Question 12

Smith Company reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000, unfavorable temporary differences of $20,000, and favorable permanent differences of $40,000. Using a tax rate of 34%, Smith's deferred income tax expense or benefit would be:

Accepted Answer

A)  Net deferred tax expense of $10,200 
B)  Net deferred tax benefit of $10,200 
C)  Net deferred tax expense of $23,800 
D) Net deferred tax benefit of $23,800 
A)  Net deferred tax expense of $10,200 
B)  Net deferred tax benefit of $10,200 
C)  Net deferred tax expense of $23,800 
D) Net deferred tax benefit of $23,800

Question 13

Which of the following statements is true?

Accepted Answer

A)  ASC 740 focuses on the income tax expense or benefit on the income statement 
B)  ASC 740 focuses on the balances in the deferred tax assets and liabilities on the balance sheet 
C)  ASC 740 focuses on the income taxes paid or refunded in the Statement of Cash Flows 
D) ASC 740 focuses on the computation of a company's effective tax rate in the income tax note to the financial statements 
A)  ASC 740 focuses on the income tax expense or benefit on the income statement 
B)  ASC 740 focuses on the balances in the deferred tax assets and liabilities on the balance sheet 
C)  ASC 740 focuses on the income taxes paid or refunded in the Statement of Cash Flows 
D) ASC 740 focuses on the computation of a company's effective tax rate in the income tax note to the financial statements

Question 14

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized.
Recognition and measurement are the two steps.

Accepted Answer

A) True 
 B)False

Question 15

Tax-exempt interest from municipal bonds is an example of a permanent book to tax difference.

Accepted Answer

A) True 
 B)False

Question 16

Lynch Company had a net deferred tax asset of $68,000 at the beginning of the year, representing a net taxable temporary difference of $200,000. During the year, Lynch reported pretax book income of $800,000. Included in the computation were favorable temporary differences of $20,000 and unfavorable temporary differences of $50,000. During the year, the company's tax rate decreased from 34% to 30%. Lynch's deferred income tax expense or benefit for the current year would be:

Accepted Answer

A)  Net deferred tax benefit of $9,000 
B)  Net deferred tax expense of $9,000 
C)  Net deferred tax benefit of $1,000 
D) Net deferred tax expense of $1,000 
A)  Net deferred tax benefit of $9,000 
B)  Net deferred tax expense of $9,000 
C)  Net deferred tax benefit of $1,000 
D) Net deferred tax expense of $1,000

Question 17

Temporary differences create either a deferred tax asset or a deferred tax liability.

Accepted Answer

A) True 
 B)False

Question 18

Costello Corporation reported pretax book income of $500,000. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, Costello received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Using a tax rate of 34%, Costello's deferred income tax expense or benefit would be:

Accepted Answer

A)  $11,900 net deferred tax expense 
B)  $11,900 net deferred tax benefit 
C)  $15,300 net deferred tax benefit 
D) $15,300 net deferred tax expense 
A)  $11,900 net deferred tax expense 
B)  $11,900 net deferred tax benefit 
C)  $15,300 net deferred tax benefit 
D) $15,300 net deferred tax expense

Question 19

Green 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, Green subtracted a dividends received deduction of $25,000 in computing its current year taxable income. Using a tax rate of 34%, Green's cash tax rate is:

Accepted Answer

A)  34% 
B)  33.15% 
C)  31.45% 
D) 30.6% 
A)  34% 
B)  33.15% 
C)  31.45% 
D) 30.6%

Question 20

Frost Corporation reported pretax book income of $3,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $350,000, and unfavorable permanent differences of $50,000. Using a tax rate of 34%, compute Frost's deferred income tax expense or benefit.

Accepted Answer

$51,000 deferred income tax be

Which of the following items does not result in a permanent difference?

Which of the following statements is true?

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized. Recognition and measurement are the two steps.

Tax-exempt interest from municipal bonds is an example of a permanent book to tax difference.

Temporary differences create either a deferred tax asset or a deferred tax liability.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 6: Accounting for Income Taxes

Which of the following items does not result in a permanent difference?

Which of the following statements is true?

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized. Recognition and measurement are the two steps.

Tax-exempt interest from municipal bonds is an example of a permanent book to tax difference.

Temporary differences create either a deferred tax asset or a deferred tax liability.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters