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Exam 16: Accounting for Income Taxes

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Question 21

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For the current year ($ in millions) , Centipede Corp. had $80 in pretax accounting income. This included warranty expense of $6 and $20 in depreciation expense. Two million of warranty costs were incurred, and MACRS depreciation amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's taxable income?

A) $73 million.
B) $69 million.
C) $63 million.
D) $49 million.

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

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Question 22

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At the end of its first year of operations, Prince Charming Corporation had a current liability of $300,000 for unearned rent. This was the only difference between pretax accounting income and taxable income. Assume an income tax rate of 40%. Required: The tax liability from the tax return is $750,000. Prepare the journal entry to record income taxes for Prince Charming's first year of operations. Show well-labeled computations.

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Question 23

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The Bell Company had the following operating results: What is the income tax refund receivable?

What argument serves as the basis for the GAAP requirement that deferred taxes should be recognized for all temporary differences?

In reconciling net income to taxable income, interest earned on municipal bonds is:

What is a valuation allowance for deferred tax assets and when is it used?

Using straight-line depreciation for financial reporting purposes and MACRS for tax purposes in the first year of an asset's life creates a:

Gore Company, organized on January 2, 2013, had pretax accounting income of $7,000,000 and taxable income of $10,000,000 for the year ended December 31, 2013. The 2013 tax rate was 40%. The only difference between book and taxable income is estimated warranty costs. Expected payments and scheduled enacted tax rates are as follows: Required: Prepare one compound journal entry to record Gore's provision for taxes for the year 2013.

Recognizing tax benefits in a loss year due to a net operating loss carryforward requires:

GAAP regarding accounting for income taxes requires the following procedure:

Of the following temporary differences, which one ordinarily creates a deferred tax asset?

North Dakota Corporation began operations in January 2012 and purchased a machine for $20,000. North Dakota uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2012, 30% in 2013, and 20% in 2014. Pretax accounting income for 2012 was $150,000, which includes interest revenue of $20,000 from municipal bonds. The enacted tax rate is 30% for all years. There are no other differences between accounting and taxable income. Required: Prepare a journal entry to record income taxes for the year 2012. Show well-labeled computations for the amount of income tax payable and the change in the deferred tax account.

Four independent situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by temporary differences reported first on: Required: For each situation, determine the taxable income assuming pretax accounting income is $100,000. Show well-labeled computations.

How much tax expense on income from continuing operations would be reported in Hobson's income statement?

Pocus, Inc., reports warranty expense when related products are sold. For tax purposes, the warranty costs are deductible as incurred. At the end of the current year, Pocus has a warranty liability of $200,000 and taxable income of $20,000,000. At the end of the previous year, Pocus reported a deferred tax asset of $80,000 related to the difference in reporting warranty expense, its only temporary difference. The enacted tax rate is 30% each year. Required: Prepare the appropriate journal entry for Pocus to record the income tax provision for the current year. Show well-labeled supporting computations.

Franklin's taxable income ($ in millions) is:

Which of the following circumstances creates a future deductible amount?

The valuation allowance account that is used in conjunction with deferred taxes relates:

Which of the following statements is true as to GAAP regarding accounting for income taxes, and its use of the asset and liability approach?

Expenditures currently deducted in the tax return but not included with expenses in the income statement until subsequent years create deferred tax liabilities.