Flashcards in DETX Deck (50)
At the most recent year-end, a company had a deferred tax liability related to an asset classified as current. The amount exceeded a deferred tax asset related to a current liability, and a deferred tax liability related to a noncurrent liability. Which of the following should be reported in the company’s most recent year-end balance sheet?
a. The deferred tax asset as a current asset.
b. The excess of the two deferred tax liabilities over the deferred tax asset as a current liability.
c. The excess of the deferred tax liability related to a current asset over the deferred tax asset related to a current liability as a current liability
d. The sum of the two deferred tax liabilities as a noncurrent liability.
he excess of the deferred tax liability related to a current asset over the deferred tax asset related to a current liability as a current liability
According to ASC Topic 740, Income Taxes, which of the following items should affect current income tax expense for year 3?
a. Interest on a 2006 tax deficiency paid in year 3.
b. Change in income tax rate for year 4.
c. Penalty on a 2006 tax deficiency paid in year 3.
d. Change in income tax rate for year 3.
Change in income tax rate for year 3.
Nala Inc. reported deferred tax assets and deferred tax liabilities at the end of year 3 and at the end of year 4. For the year ended year 4 Nala should report deferred
income tax expense or benefit equal to the
Sum of the net changes in deferred tax assets and deferred tax liabilities.
Miro Co. began business on January, 2, year 2. Miro used the double-declining balance method of depreciation for financial statement purposes for its building, and the straight-line method for income taxes. On January 16, year 4, Miro elected to switch to the straight-line method for both financial statement and tax purposes. The building cost $240,000 in year 2, which has an estimated useful life of 16 years and no salvage value. Data related to the building is as follows:
Year 2 $30,000 $15,000
Year 3 $26,250 $15,000
Miro’s tax rate is 40%. Which of the following statements is correct?
a. Miro’s deferred tax asset should be reduced by $10,500 in year 4.
b. Miro’s deferred tax liability should be reduced by $1,875 in year 4
c. Miro’s deferred tax asset should be decreased by $750 in year 4.
d. There should be no reduction in Miro’s deferred tax liabilities or deferred tax assets in year 4.
Miro’s deferred tax asset should be decreased by $750 in year 4.
In year 3, Lobo Corp. reported for financial statement purposes the following revenue and expenses which were not included in taxable income:
Premiums on officer’s life insurance under which the corporation is the beneficiary: $5,000
Interest revenue on qualified state or municipal bonds: 10,000
Estimated future warranty costs to be paid in year 4 and year 5: 60,000
Lobo’s enacted tax rate for the current and future years is 30%. Lobo has never had any net operating losses (book or tax) and does not expect any in the future. There were no temporary differences in prior years. The deferred tax benefit to be applied against current income tax expense is
Purl Company began operations on January 1, year 1. It recognizes income from construction-type contracts under the percentage-of-completion method for financial reporting. However, on its income tax returns, Purl appropriately reports revenues under the completed-contract method. Information concerning income recognition under each method is as follows:
Year Percentage-of-completion Completed-contract
year 1 $450,000 $0
year 2 675,000 425,000
year 3 825,000 925,000
For all affected years, assume the income tax rate is 30% and there are no other temporary differences. For year 3 Purl should record an increase (decrease) in the deferred tax liability account of
Among the items reported on Neal Corporation’s income statement for the year ended December 31, year 3, are the following:
Interest received on municipal bonds $10,000
Penalties and related interest 18,000
Temporary differences for measuring deferred taxes (interperiod tax allocation) amount to
Brass Co. reported income before income tax expense of $60,000 for year 2. Brass had no permanent or temporary timing differences for tax purposes. Brass has an effective tax rate of 30% and a $40,000 net operating loss carry forward from year 1. What is the maximum income tax benefit that Brass can realize from the loss carry foward for year 2?
No net deferred tax asset (i.e., deferred tax asset net of related valuation allowance) was recognized in the year 2 financial statements by the Chaise Company when
a loss from discontinued segments was carried forward for tax purposes because it was more likely than not that none of this deferred tax asset would be realized.
Chaise had no temporary differences. The tax benefit of the loss carried forward reduced current taxes payable on year 3 continuing operations. The year 3 income
statement would include the tax benefit from the loss brought forward in
Income from continuing operations.
Kent, Inc.’s reconciliation between financial statement and taxable income for year 3 follows:
Pretax financial income $150,000
Permanent difference (12,000)
Temporary difference—depreciation (9,000)
Taxable income $129,000
difference (future taxable
amounts) $11,000 $20,000
The enacted tax rate was 34% for year 2 and 40% for year 3 and years thereafter. In its year 3 income statement, what amount should Kent report as current portion of income tax expense?
Grace Corporation prepares its financial statements under IFRS. Which of the following statements is true?
I. IFRS permits netting of all deferred taxes.
II. IFRS permits netting of deferred taxes that relate to the same taxing authority.
III. IFRS permits deferred taxes to be classified as current.
IV. IFRS permits deferred taxes to be classified as noncurrent.
II and IV.
Lion Co.’s income statement for its first year of operations shows pretax income of $6,000,000. In addition1 the following differences existed between Lion’s tax return and records
Tax return Accounting records
expense $220,000 $250,000
Depreciation expense 860,000 570,000
Tax-exempt interest revenue 50,000
Lion’s current year tax rate is 30% and the enacted rate for future years is 40%. what amount should Lion report as deferred tax expense in its income statement for the year?
Ajax Corp. has an effective tax rate of 30%. on January 1, year 2, Ajax purchased equipment for $100,000. The equipment has a useful life of 10 years. What amount of current tax benefit will Ajax realize during year 2 by using the 150% declining balance method of depreciation for tax purposes instead of the straight-line method?
On December 20, year 3, Sussex Corporation received a condemnation award of $300,000 as compensation for the forced sale of a company plant with a book value
of $200,000. In its income tax return for the year ended December 31, year 3, Sussex elected to replace the condemned plant within the allowed replacement
period. Accordingly, the $100,000 gain was rot reported as taxable income for year 3. Sussex has an enacted income tax rate of 30% for year 3. In its December
31, year 3 balance sheet, what amount should Sussex report as a deferred tax liability on the above gain?
At December 31, year 3, Bren Co. had the following deferred income tax items:
. A deferred income tax liability of $15,000 related to a noncurrent asset.
. A deferred income tax asset of $3,000 related to a noncurrent liability.
. A deferred income tax asset of $8,000 related to a current liability.
Which of the following should Bren report in the noncurrent section of its December 31, year 3 balance sheet?
a. A noncurrent liability of $12,000.
b. A noncurrent liability of $4,000.
c. A noncurrent asset of $3,000 and a noncurrent liability of $15,000.
d. A noncurrent asset of $11,000 and a noncurrent liability of $15,000.
A noncurrent liability of $12,000.
North, Inc. uses the equity method of accounting for its 50% investment in Mill Corp.’s common stock. During year 3, Mill reported earnings of $600,000 and paid
dividends of $200,000. Assume that: (1) all undistributed earnings of Mill will be distributed as dividends in future periods, (2) the dividends received from Mill are eligible for the 80% dividends received deduction, and (3) North’s income tax rate is 30%. The change in the amount of deferred income tax to be reported by North for year 3 is
Collin Co.’s year 1 income statement reported $90,000 income before provision for income taxes. To compute the provision for federal income taxes, the following
year 1 data are provided:
Rent received in advance $20,000
Income from exempt municipal bonds 20,000
Depreciation deducted for income tax
purposes in excess of depreciation reported 10,000
for financial statements purposes
Enacted corporate income tax rate 30%
If the alternative minimum tax provisions are ignored, what amount of current federal income tax liability should be reported in Dunn’s December 31, year 1 balance sheet?
Agard Company’s enacted income tax rate is 30%. For the year ended December 31, year 3, Agard’s income statement reflected depletion expense of $1,000,000
based on the cost of assets being depleted. However, Agard properly deducted $4,000,000 for percentage depletion on its year 3 tax return. How much should be
reported as provision (expense) for deferred income taxes in Agard’s year 3 financial statements?
According to ASC 740, Income Taxes, justification for the method of determining periodic tax expense is based on the concept of
Recognition of assets and liabilities.
As a result of differences between depreciation for financial reporting purposes and tax purposes, the financial reporting basis of Noor Co.’s sole depreciable asset, acquired in year 3, exceeded its tax basis by $250,000 at December 31, year 3. This difference will reverse in future years. The enacted tax rate is 30% for year 3, and 40% for future years. Noor has no other temporary differences. In its December 31, year 3 balance sheet, how should Noor report the deferred tax effect of this difference?
As a liability of $100,000.
Huskie Corporation’s income statement for the year ended December 31, year 3, shows pretax book income of $400,000. The following items for year 3 are treated
differently on the tax return and on the books:
Per tax return Per books
Royalty income $20,000 $40,000
Depreciation expense 125,000 100,000
Payment of a penalty None 15,000
Assume that Huskie’s enacted tax rate for year 3 is 40%, and 30% for all future years. Of Huskie’s total income tax expense, how much should be reported as current portion of income taxes in Huskie’s year 3 income statement?
At the most recent year-end, a company’s appropriately recognized noncurrent deferred income tax asset exceeded a current deferred income tax liability. Which of
the following should be reported in the company’s most recent year-end balance sheet?
a. The excess of the deferred income tax asset over the deferred income tax liability as a current asset.
b. The deferred income tax asset as a noncurrent asset.
c. The deferred income tax asset as a current asset.
d. The excess of the deferred income tax asset over the deferred income tax liability as a noncurrent asset.
The deferred income tax asset as a noncurrent asset.
Which of the following could require interperiod tax allocation?
a. Percentage depletion in excess of cost depletion.
b. Nondeductible officers life insurance premium.
c. Unearned service contract revenue.
d. Interest received on municipal obligations.
Unearned service contract revenue.
Deferred taxes should be recognized for
a. Permanent difference and Temporary difference
b. Permanent difference
c. Temporary difference
Orleans Co., a cash-basis taxpayer, prepares accrual basis financial statements. In its year 3 balance sheet, Orleans’ deferred income tax liabilities increased compared to year 3. Which of the following changes would cause this increase in deferred income tax liabilities?
I. An increase in prepaid insurance.
II. An increase in rent receivable.
III. An increase in warranty obligations.
I and II
Lance, Inc., a calendar year corporation, reported the following operating income (loss) before income tax and the enacted tax rates for the last three years of operations:
Income Tax rate
year 2 $ 100,000 40%
year 3 $(300,000) 30%
year 4 $ 400,000 30%
There are no permanent or temporary differences between operating income (loss) for financial and income tax reporting purposes. When filing its year 3 tax return,
Lance elected to use only the carry forward provision. What amount should Lance report as income tax refund receivable in year 3?
As a result of differences between depreciation for financial reporting purposes and tax purposes, the financial reporting basis of a company’s plant assets exceeded the tax basis. Assuming the company had no other temporary differences, the company should report a
Deferred tax liability
In year 2, Ajax, Inc. reported taxable income of $400,000 and pretax financial statement income of $300,000. The difference resulted from $60,000 of nondeductible
premiums on Ajax’s officers’ life insurance and $40,000 of rental income received in advance. Rental income is taxable when received. Ajax’s enacted tax rate is 30%. In its year 2 income statement, what amount should Ajax report as income tax expense—current portion?
Pine Corp.’s books showed pretax income of $800,000 for the year ended December 31, year 3. In the computation of federal considered:
Gain on an involuntary conversion (Pine has elected to replace the property within the statutory period using total proceeds): $350,000
Depreciation deducted for tax purposes in excess of depreciable deducted for book purposes: $50,000
Federal estimated tax payments, year 3: $70,000
Enacted federal tax rate, year 3: 30%
What amount should Pine report as its current federal income tax liability on its December 31, year 3 balance sheet?