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Exam 16: Accounting for Income Taxes

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Question 21

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Explain why LMC has a $209.4 million valuation allowance for its deferred tax assets.

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Apparently, it is more like than not tha...

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Question 22

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The valuation allowance account that is used in conjunction with deferred tax assets is a(n) :

A) Liability.
B) Component of shareholders' equity.
C) Asset.
D) Contra asset.

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

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Question 23

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During the current year, Stern Company had pretax accounting income of $45 million. Stern's only temporary difference for the year was rent received for the following year in the amount of $15 million. Stern's taxable income for the year would be:

The following information is for Hulk Gyms' first year of operations. Amounts are in millions of dollars. The enacted tax rate is 30%. Required: Prepare a compound journal entry to record the income tax expense for the year 2009. Show well-labeled computations.

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

What would Kent's income tax expense be in the year 2009?

Under current tax law a net operating loss may be carried forward up to:

What events create non-temporary or permanent differences between accounting income and taxable income? What effect do these events have on the determination of income taxes payable and deferred income taxes?

In its first four years of operations Peridot Jewelers reported the following operating income (loss) amounts: There were no other deferred income taxes in any year. In 2008, Peridot elected to carry back its operating loss. The enacted income tax rate was 40%. In its 2009 income statement, what amount should Peridot report as income tax expense?

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

Which of the following creates a deferred tax liability?

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.

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

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.

Gore Company, organized on January 2, 2009, had pretax accounting income of $7,000,000 and taxable income of $10,000,000 for the year ended December 31, 2009. The 2009 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 2009. $\begin{array} { r r r } 2010 & \$ 1,000,000 & 35 \% \\2011 & 500,000 & 35 \% \\2012 & 500,000 & 35 \% \\2013 & 1,000,000 & 30 \%\end{array}$

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.

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?

In its first four years of operations Peridot Jewelers reported the following operating income (loss) amounts: There were no other deferred income taxes in any year. In 2008, Peridot elected to carry back its operating loss. The enacted income tax rate was 40%. In its 2009 income statement, what amount should Peridot report as current income tax payable?

SFAS 109 requires the following procedure.