Exam 17: Accounting for Income Taxes

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:

What confidence level must management have that a tax position will be sustained on audit before it can recognize any portion of the related deferred tax asset under ASC 740?

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:

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.

Gull Corporation reported pretax book income of $2,000,000. Included in the computation were favorable temporary differences of $300,000, unfavorable temporary differences of $200,000, and favorable permanent differences of $50,000. Assuming a tax rate of 34%, compute Gull's current income tax expense or benefit.

Which of the following statements is true?

Farm Corporation reported pretax book loss of $500,000 in 2016. Tax depreciation exceeded book depreciation by $100,000. In addition, Farm received prepaid income of $50,000, which was included on its tax return but was not included in the book loss. Farm had $0 taxable income in 2015 and 2014. Assuming a tax rate of 34%, compute the Company's income tax expense or benefit for 2016.

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%.

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

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:

Which of the following book-tax basis differences results in a deductible temporary difference?

The classification of a deferred tax asset as current or long-term usually depends on the balance sheet classification of the asset or liability to which it relates.

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

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.

Which of the following items would likely not be included in the computation of a company's structural effective tax rate?

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as:

Which of the following statements is true?

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

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.

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