Question 1

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

Accepted Answer

The answer of Explain why LMC has a $209.4 million...

Question 2

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.

Accepted Answer

The answer of The following information is for Hulk Gyms'...

Question 3

SFAS 109 requires the following procedure.

Accepted Answer

A) Computation of deferred tax assets and liabilities based on temporary differences. 
B) Computation of deferred income tax based on permanent differences. 
C) Computation of income tax expense based on taxable income. 
D) Computation of deferred income tax based on temporary and permanent differences.

Question 4

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?

Accepted Answer

A) $ 80,000 
B) $110,000 
C) $170,000 
D) $180,000

Question 5

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

Accepted Answer

A) Tax depreciation in excess of book depreciation. 
B) Revenue collected in advance. 
C) The installment sales method. 
D) None of these.

Question 6

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.
 $$\begin{array} { r r r } 
2010 & \$ 1,000,000 & 35 \% \
2011 & 500,000 & 35 \% \
2012 & 500,000 & 35 \% \
2013 & 1,000,000 & 30 \%
\end{array}$$

Accepted Answer

The answer of Gore Company, organized on January 2, 2009,...

Question 7

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

Accepted Answer

The answer of Some accountants believe that deferred taxes should...

Question 8

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.

Accepted Answer

The answer of Four independent situations are described below. Each...

Question 9

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

Accepted Answer

A) $134. 
B) $124. 
C) $119.4. 
D) $118.

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following creates a deferred tax liability?

Accepted Answer

A) An unrealized loss from recording inventory at lower of cost or market. 
B) Accelerated depreciation in the tax return. 
C) Estimated warranty expense. 
D) Subscriptions collected in advance.

Question 12

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?

Accepted Answer

The answer of What events create non-temporary or permanent differences...

Question 13

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

Accepted Answer

A) $61,200. 
B) $48,200. 
C) $71,200. 
D) None of these is correct.

Question 14

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

Accepted Answer

A) the installment method used for sales of property. 
B) MACRS depreciation method used for equipment. 
C) interest income on municipal bonds. 
D) percentage-of-completion method for long-term construction contracts.

Question 15

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

Accepted Answer

The answer of Identify three examples of permanent differences between...

Question 16

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.

Accepted Answer

The answer of Roberts Corp. reports pretax accounting income of...

Question 17

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?

Accepted Answer

A) $ 80,000 
B) $110,000 
C) $170,000 
D) $180,000

Question 18

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:

Accepted Answer

A) $30 million. 
B) $60 million. 
C) $50 million. 
D) $45 million.

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

A) 5 years. 
B) 10 years. 
C) 15 years. 
D) 20 years.

Exam 16: Accounting for Income Taxes