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Which of the following statements is true?


A) Another name for a taxable temporary difference is an unfavorable difference.
B) Another name for a taxable temporary difference is a favorable difference.
C) Another name for a deductible temporary difference is a favorable difference.
D) Another name for a deductible temporary difference is a permanent difference.

E) A) and B)
F) C) and D)

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


A) Compensation deduction related to incentive stock options.
B) Compensation deduction related to nonqualified stock options that were expensed for financial accounting purposes.
C) Dividends received deduction.
D) State and local income taxes.

E) A) and C)
F) A) and D)

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B-Line 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 dividends received deduction. a. Compute B-Line's current income tax expense. b. Compute B-Line's deferred income tax expense or benefit. c. Compute B-Line's effective tax rate. d. Provide a reconciliation of B-Line's effective tax rate with its hypothetical tax rate of 21 percent.

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× 21%
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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. Costello's deferred income tax expense or benefit would be:


A) $7,350 net deferred tax expense.
B) $7,350 net deferred tax benefit.
C) $7,950 net deferred tax benefit.
D) $7,980 net deferred tax expense.

E) C) and D)
F) B) and D)

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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 $80,000. The corporation's current income tax expense or benefit would be:


A) $105,000 tax benefit.
B) $88,200 tax expense.
C) $86,100 tax benefit.
D) $69,300 tax expense.

E) A) and D)
F) B) and D)

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D

Yellow Rose Corporation reported pretax book income of $100,000,000. 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. Compute Yellow Rose's taxes payable or refundable.

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$20,973,75...

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Lynch Company had a net deferred tax asset of $69,292 at the beginning of the year, representing a net taxable deductible difference of $203,800 (taxed at 34 percent) . During the year, Lynch reported pretax book income of $815,200. Included in the computation were favorable temporary differences of $23,800 and unfavorable temporary differences of $51,900.At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Lynch's deferred income tax expense or benefit for the current year would be:


A) Net deferred tax benefit of $5,901.
B) Net deferred tax expense of $5,901.
C) Net deferred tax benefit of $32,395.
D) Net deferred tax expense of $20,593.

E) A) and B)
F) C) and D)

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Costello Corporation reported pretax book income of $500,600. During the current year, the reserve for bad debts increased by $6,200. In addition, tax depreciation exceeded book depreciation by $40,600. Finally, Costello received $3,300 of tax-exempt life insurance proceeds from the death of one of its officers. Costello's deferred income tax expense or benefit would be:


A) $7,224 net deferred tax expense.
B) $7,224 net deferred tax benefit.
C) $7,884 net deferred tax benefit.
D) $7,917 net deferred tax expense.

E) C) and D)
F) A) and B)

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


A) A deferred tax asset is classified as noncurrent only if the company expects the future tax benefit to be received more than 12 months from the balance sheet date.
B) All deferred tax assets and liabilities are treated as noncurrent.
C) A deferred tax asset related to a bad debt reserve is classified as current if the related accounts receivable is classified as a current asset.
D) A deferred tax asset related to inventory capitalization is classified as noncurrent only if the company uses a FIFO accounting method and the inventory to which the deferred tax asset relates will not be treated as sold within 12 months from the balance sheet date.

E) A) and D)
F) A) and C)

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Morgan Corporation determined that $2,000,000 of the research credit on its current-year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made the following assessment of the company's potential tax benefit from the credit and its probability of occurring. Morgan Corporation determined that $2,000,000 of the research credit on its current-year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made the following assessment of the company's potential tax benefit from the credit and its probability of occurring. Under ASC 740, what amount of the tax benefit related to theresearch credit can Morgan recognize in calculating its income tax provision in the current year? Under ASC 740, what amount of the tax benefit related to theresearch credit can Morgan recognize in calculating its income tax provision in the current year?

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$1,500,000.The amoun...

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Which of the following statements is true?


A) A change in capitalized inventory costs under §263A always produces an increase in a deferred tax asset.
B) A change in capitalized inventory costs under §263A always produces a decrease in a deferred tax asset.
C) A change in capitalized inventory costs under §263A can produce an increase or a decrease in a deferred tax asset.
D) A change in capitalized inventory costs under §263A always produces a permanent difference.

E) A) and B)
F) A) and C)

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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:


A) Deductible temporary difference.
B) Taxable temporary difference.
C) Favorable permanent difference.
D) Unfavorable permanent difference.

E) All of the above
F) A) and B)

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Jones Company reported pretax book income of $409,000. Included in the computation were favorable temporary differences of $50,900, unfavorable temporary differences of $20,450, and favorable permanent differences of $40,450. Book equivalent of taxable income is:


A) $449,450.
B) $409,000.
C) $368,550.
D) $337,650.

E) All of the above
F) C) and D)

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Bruin Company received a $100,000 insurance payment on the death of its company president. The company annually paid $1,000 of nondeductible insurance premiums on the policy. Bruin reported the insurance receipt as income and deducted the premium payments on its books. For ASC 740 purposes, the income and deduction are characterized as:


A) Both are taxable temporary differences.
B) Both are deductible temporary differences.
C) The insurance receipt is a favorable permanent difference and the premium payment is an unfavorable permanent difference.
D) The insurance receipt is a taxable temporary difference and the premium payment is an unfavorable permanent difference.

E) C) and D)
F) B) and C)

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Sparrow Corporation reported pretax book income of $5,000,000. During the current year, the reserve for warranties increased by $300,000. In addition, tax depreciation exceeded book depreciation by $400,000. Finally, Sparrow received $50,000 of tax-exempt interest from municipal bonds. Compute Sparrow's current income tax expense or benefit.

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$1,018,500...

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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. Swordfish's deferred income tax expense or benefit would be:


A) $23,100 net deferred tax expense.
B) $23,100 net deferred tax benefit.
C) $26,250 net deferred tax benefit.
D) $26,250 net deferred tax expense.

E) A) and B)
F) A) and C)

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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:


A) Material.
B) Significant.
C) Pertinent.
D) Important.

E) C) and D)
F) A) and B)

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Identify the following items as creating a temporary difference, permanent difference, or no difference. Identify the following items as creating a temporary difference, permanent difference, or no difference.

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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 (taxed at 34 percent) . During the year, Weaver reported pretax book income of $400,000. Included in the computation were unfavorable temporary differences of $50,000 and favorable temporary differences of $20,000. At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Weaver's deferred income tax expense or benefit for the current year would be:


A) Net deferred tax benefit of $6,300.
B) Net deferred tax expense of $6,300.
C) Net deferred tax benefit of $19,300.
D) Net deferred tax expense of $19,300.

E) None of the above
F) All of the above

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C

Robinson 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 (taxed at 34 percent) . During the year, Robinson 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, Congress reduced the corporate tax rate to 21 percent. Robinson's deferred income tax expense or benefit for the current year would be:


A) Net deferred tax benefit of $6,300.
B) Net deferred tax expense of $6,300.
C) Net deferred tax benefit of $6,700.
D) Net deferred tax expense of $6,700.

E) B) and C)
F) All of the above

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