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Exam 16: Accounting for Income Taxes

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Question 1

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Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Deferred tax liability

A) Is usually a revenue or expense item that is excluded or not deductible in determining taxable income.
B) Is reduced by a valuation allowance if realization of future tax benefit is not more likely than not.
C) Arises when future taxable amounts are created by temporary differences.
D) Is the process of allocating income taxes among two or more reporting periods.
E) Will always create a deferred tax asset.

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

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Question 2

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The information that follows pertains to Julia Company: (a.) Temporary differences for the year 2018 are summarized below. Expenses deducted in the tax return, but not included in the income statement: Depreciation $60,000 Prepaid expense 8,000 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 2018. (c.) Pretax accounting income was $67,000 and taxable income was $8,000 for 2018. (d.) There were no permanent differences. (e.) The tax rate is 30%. Required: Prepare the journal entry to record the tax provision for 2018. Provide supporting computations.

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Question 3

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According to GAAP for accounting for income taxes, when a company has a net operating loss carryforward:

GAAP regarding accounting for income taxes requires which of the following procedures?

Information for Hobson Corp. for the current year ($ in millions) : The applicable enacted tax rate for all periods is 40%. - How much tax expense on income from continuing operations would be reported in Hobson's income statement?

Changes in enacted tax rates that do not become effective in the current period affect deferred tax accounts only after the new rates take effect.

The way companies deal with uncertainty in tax positions is prescribed by GAAP in FASB ASC 740-10: Income Taxes-Overall (previously FASB Interpretation No. 48 (FIN 48)). Describe the two-step process provided by GAAP (previously FIN 48).

What is the justification for a corporation determining income for financial reporting purposes differently than the way it is determined for tax purposes?

The financial reporting carrying value of Boze Music's only depreciable asset exceeded its tax basis by $150,000 at December 31, 2018. This was a result of differences between straight-line depreciation for financial reporting purposes and MACRS for tax purposes. The asset was acquired earlier in the year. Boze has no other temporary differences. The enacted tax rate is 30% for 2018 and 40% thereafter. Boze should report the deferred tax effect of this difference in its December 31, 2018, balance sheet as:

Rent collected in advance results in deferred tax assets.

Listed below are five independent situations. For each situation indicate (by letter) whether it will create (A) a deferred tax asset, (L) a deferred tax liability, or (N) neither. -Current year charitable contributions not currently deductible due to tax limitations but which can be carried forward to future tax years.

Roberts Corp. reports pretax accounting income of $200,000, but due to a single temporary difference, taxable income is only $150,000. At the beginning of the year, no temporary differences existed. Roberts is subject to a tax rate of 40%. Required: Prepare the compound journal entry to record Roberts Corp.'s income taxes. Show well-labeled computations.

Information for Hobson Corp. for the current year ($ in millions) : The applicable enacted tax rate for all periods is 40%. -How should Hobson report tax on the discontinued operation?

Listed below are five independent situations. For each situation indicate (by letter) whether it will create (A) a deferred tax asset, (L) a deferred tax liability, or (N) neither. -Prepaid expenses, tax deductible when paid.

Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset?

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

Which of the following creates a deferred tax liability?

The tax benefit of a net operating loss carried back two years represents a current receivable for income tax to be refunded.

A deferred tax asset represents the tax effect of the temporary difference between the financial carrying value of an asset or liability and its tax basis.

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