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Exam 16: Accounting for Income Taxes

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Question 51

Multiple Choice

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A net operating loss (NOL) carryforward cannot result in the balance sheet at the end of the NOL year showing:

A) A receivable under current assets for an income tax refund.
B) A current deferred tax asset.
C) A noncurrent deferred tax asset.
D) Both a current and a noncurrent deferred tax asset.

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

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Question 52

Multiple Choice

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What should be the balance in Kent's deferred tax liability account as of December 31, 2013?

A) $5,200.
B) $7,500.
C) $25,000.
D) None of the above is correct.

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

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Question 53

Multiple Choice

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

In 2012, HD had reported a deferred tax asset of $90 million with no valuation allowance. At December 31, 2013, the account balances of HD Services showed a deferred tax asset of $120 million before assessing the need for a valuation allowance and income taxes payable of $80 million. HD determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized. HD made no estimated tax payments during 2013. What amount should HD report as income tax expense in its 2013 income statement?

Reliable Corp. had a pretax accounting income of $30 million this year. This included the collection of $40 million of life insurance proceeds when several key executives died in a plane crash. Temporary differences for the current year netted out to zero. Reliable has had a 40% tax rate and taxable income of $120 million over the previous two years and plans to elect an operating loss carryback for any NOL. In the current year financial statements, Reliable would report:

Tobac Company reported a pretax operating loss of $50,000 for financial reporting and tax purposes in 2013. The enacted tax rate is 40% for 2013 and subsequent years. Assume that Tobac requests a refund of taxes already paid by electing a loss carryback. Taxable income, tax rates, and income taxes paid in Tobac's first four years of operations were as follows: Required: 1.) Prepare the journal entry to record Tobac's income taxes for the year 2013. Show well-labeled computations. 2.) Compute Tobac's net loss for 2013.

When tax rates are changed subsequent to the creation of a deferred tax asset or liability, GAAP requires that:

Identify three examples of permanent differences between accounting income and taxable income.

Which of the following would never require reporting deferred tax assets or deferred tax liabilities?

A reconciliation of pretax financial statement income to taxable income is shown below for Fieval Industries for the year ended December 31, 2013, its first year of operations. The income tax rate is 40%. What amount(s) should Fieval report related to deferred income taxes in its 2013 balance sheet?

At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A disclosure note reveals that the entire $400,000 will be earned in the next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a:

Theodore Enterprises had the following pretax income (loss) over its first three years of operations: For each year there were no deferred income taxes and the tax rate was 30%. In its 2012 tax return, Theodore elected a loss carryback. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2012. What was Theodore's income tax expense for 2013?

Due to differences between depreciation reported in the income statement and depreciation deducted for tax purposes, Lucas Corp. has $2 million in temporary differences that will increase taxable income next year. Assuming that Lucas has no other temporary differences, deferred income taxes should be reported in this year's ending balance sheet as a:

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

The information that follows pertains to Julia Company: (a.) Temporary differences for the year 2013 are summarized below. Expenses deducted in the tax return, but not included in the income statement: Expenses reported in the income statement, but not deducted in the tax return: Warranty expense 9,000 (b.) No temporary differences existed at the beginning of 2013. (c.) Pretax accounting income was $67,000 and taxable income was $8,000 for 2013. (d.) There were no permanent differences. (e.) The tax rate is 30%. Required: Prepare the journal entry to record the tax provision for 2013. Provide supporting computations.

The classification of deferred tax assets is sometimes dependent on when the benefit will be realized.

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.

Some accountants believe that deferred taxes should not be recognized for certain temporary differences. What is the conceptual basis for this argument?

Which of the following causes a permanent difference between taxable income and pretax accounting income?

Woody Corp. had taxable income of $8,000 in the current year. The amount of MACRS depreciation was $3,000, while the amount of depreciation reported in the income statement was $1,000. Assuming no other differences between tax and accounting income, Woody's pretax accounting income was: