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Exam 6: Accounting for Income Taxes

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Question 31

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Packard Corporation reported pretax book income of $500,000. Included in the computation were favorable temporary differences of $10,000, unfavorable temporary differences of $100,000, and unfavorable permanent differences of $80,000. The corporation's current income tax expense or benefit would be:

A) $140,700 tax expense.
B) $123,600 tax benefit.
C) $121,800 tax expense.
D) $105,000 tax benefit.

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

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Question 32

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Acai Corporation determined that $5,000,000 of its R&D credit on its current-year tax return was uncertain. Acai determined that there was a 40 percent chance of the credit being sustained on audit. Management made the following assessment of the company's potential tax benefit from the R&D credit and its probability of occurring. Under ASC 740, what amount of the tax benefit related to the R&D credit can Acai recognize in calculating its income tax provision in the current year?

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$0.Acai cannot record any tax ...

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Question 33

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A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

Which of the following statements concerning the classification of deferred tax assets and liabilities is true?

The focus of ASC 740 is on the income statement.

Which of the following statements best describes the objective(s) of ASC 740?

Sparrow Corporation reported pretax book income of $5,000,000. During the current year, the reserve for warranties increased by $300,000. In addition, tax depreciation exceeded book depreciation by $400,000. Finally, Sparrow received $50,000 of tax-exempt interest from municipal bonds. Compute Sparrow's current income tax expense or benefit.

Jones Company reported pretax book income of $409,000. Included in the computation were favorable temporary differences of $50,900, unfavorable temporary differences of $20,450, and favorable permanent differences of $40,450. Book equivalent of taxable income is:

Temporary differences create either a deferred tax asset or a deferred tax liability.

Which of the following statements best describes a valuation allowance as it relates to accounting for income taxes?

Which of the following statements about uncertain tax position disclosures is false?

Weaver Company had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000 (taxed at 34 percent) . During the year, Weaver reported pretax book income of $400,000. Included in the computation were unfavorable temporary differences of $50,000 and favorable temporary differences of $20,000. At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Weaver's deferred income tax expense or benefit for the current year would be:

Jones Company reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000, unfavorable temporary differences of $20,000, and favorable permanent differences of $40,000. Book equivalent of taxable income is:

The Emerging Issues Task Force assists the FASB by providing guidance on the implementation of ASC 740 and other accounting pronouncements.

Tax-exempt interest from municipal bonds is an example of a permanent book-tax difference.

Irish Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $300,000, unfavorable temporary differences of $100,000, and favorable permanent differences of $200,000. Compute Irish's book equivalent of taxable income. Use this number to compute the company's total income tax provision or benefit.

TarHeel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $100,000. In addition, tax depreciation exceeded book depreciation by $200,000. Finally, TarHeel subtracted a dividends received deduction of $50,000 in computing its current-year taxable income. TarHeel's accounting effective tax rate is:

Milton Corporation reported pretax book income of $2,500,000. Included in the computation were favorable temporary differences of $400,000, unfavorable temporary differences of $150,000, and favorable permanent differences of $100,000. Compute Milton's deferred income tax expense or benefit.

ASC 740 permits a corporation to net its deferred tax assets and deferred tax liabilities regardless of the jurisdiction in which they arise.

TarHeel Corporation reported pretax book income of $1,006,000. During the current year, the net reserve for warranties increased by $100,300. In addition, tax depreciation exceeded book depreciation by $201,500. Finally, TarHeel subtracted a dividends received deduction of $51,200 in computing its current-year taxable income. TarHeel's accounting effective tax rate is: