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Exam 17: Accounting for Income Taxes

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Question 31

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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%.

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BETI of $600,000 and...

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Question 32

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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. Using a tax rate of 34%, compute Sparrow's current income tax expense or benefit.

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Question 33

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TarHeel 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, TarHeel subtracted a dividends received deduction of $25,000 in computing its current year taxable income. Assume a tax rate of 34%. TarHeel's accounting effective tax rate is:

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

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:

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.

Which of the following statements best describes a valuation allowance as it relates to accounting for income taxes?

Lafayette, Inc. completed its first year of operations with a pretax loss of $800,000. The tax return showed a net operating loss of $750,000, which the company will carry forward. The $50,000 book-tax difference results from a disallowed deduction for meals and entertainment. Management has determined that they should record a valuation allowance equal to the net deferred tax asset. Assuming a tax rate of 34%, prepare the journal entries to record the deferred tax provision and the valuation allowance.

ASC 740 deals with accounting for uncertain tax positions.

MAC, Inc. completed its first year of operations with a pretax loss of $300,000. The tax return showed a net operating loss of $500,000, which MAC will carry forward. The $200,000 book-tax difference results from excess tax depreciation over book depreciation. Management has determined that they should record a valuation allowance equal to the net deferred tax asset. Assuming a tax rate of 34%, prepare the journal entries to record the deferred tax provision and the valuation allowance.

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 best describes the focus of ASC 740?

Jones 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. Book equivalent of taxable income is:

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

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. 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, the company's tax rate increased from 34% to 35%. Robinson's deferred income tax expense or benefit for the current year would be:

Once determined, an unrecognized tax benefit under ASC 740 is not readjusted for subsequent events.

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

ASC 740 permits a corporation to net its current and long-term deferred tax liabilities.

Farm Corporation reported pretax book loss of $500,000 in 2014. 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 2013 and 2012. Assuming a tax rate of 34%, compute the Company's deferred income tax expense or benefit for 2014.

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