Deck 18: Accounting for Income Taxes

Question 1

A corporation must report its deferred tax liabilities and assets in two classifications, which are gross current amount and gross noncurrent amounts.

Answer 1

False

Question 2

It is more likely that a corporation will not need a valuation allowance for a deferred tax asset related to an operating loss carryforward if the operating loss itself provides negative evidence to the likelihood of future taxable income.

Answer 2

False

Question 3

Income tax expense as determined by GAAP differs from amount determined under the Internal Revenue Code; the differences arise due to measurement and timing.

Answer 3

True

Question 4

Interest received on municipal bonds is taxable; this is because the bonds pay a lower rate of interest than corporate bonds. The fact that they are taxable reduces the cost of borrowing for the municipalities.

Question 5

A company would determine whether to recognize an uncertain tax position by evaluating whether the tax position is "more likely than not" which is a less than 50% probability of being upheld during a tax audit by the IRS, based on the technical merits of the position.

Question 6

Which of the following is not a timing difference that would cause pretax financial accounting income to differ from taxable income?

A) Investment revenue is recognized under the equity method for financial reporting purposes but in a later period as dividends are received for income tax purposes.
B) Life insurance proceeds are received by a corporation upon the death of an insured employee of the corporation.
C) Rent received in advance is taxable when received but is not reported as revenue for financial reporting purposes until the service has actually been provided.
D) MACRS depreciation is used for income tax purposes, and straight-line depreciation is used for financial reporting purposes.

Question 7

Differences between pretax financial accounting and taxable income that are expected to reverse in one or more future accounting periods are called

A) temporary differences
B) permanent differences
C) material differences
D) partial differences

Question 8

GAAP requires intraperiod income tax allocation to income or loss as they relate to discontinued operations and extraordinary items but not to retrospective adjustments or prior period adjustments.

Question 9

What three groups are measuring and timing differences categorized?

A) temporary, permanent, operating income carrybacks and carryforwards
B) temporary, permanent, extraordinary loss carrybacks and carryforwards
C) temporary, permanent, operating loss carrybacks and carryforwards
D) temporary, permanent, operating gains carrybacks and carryforwards

Question 10

The temporary difference will result in a deferred tax liability when future taxable income will be less than future pretax financial income.

Question 11

Differences between pretax financial income and taxable income in an accounting period that will not reverse in a later accounting period are called

A) temporary differences
B) permanent differences
C) nondeductible temporary differences
D) deferred tax consequences

Question 12

If a corporation recognizes an operating loss carryforward in the year of the loss, it is agreed that the corporation should deduct the tax benefit from its operating loss.

Question 13

The intraperiod tax allocation is used to provide a faithful representation of the matching of income tax expense against the components of its pretax income which shows the after-tax impact of each of these items.

Question 14

A corporation's deferred tax expense or benefit is the change in its deferred tax liabilities or assets during the year.

Question 15

Combining the net deferred tax asset and liability amounts in the current or noncurrent group is one of the few situations in which GAAP allows offsetting assets and liabilities.

Question 16

When congress makes a tax law or rate change, a corporation recognizes financial statement impact by adjusting the deferred assets or liabilities as of the beginning of the year in which the change is made.

Question 17

Under IFRS valuation allowances for deferred tax assets are not recorded.

Question 18

Deductions that are allowed for income tax purposes but do not qualify as expenses under GAAP are permanent differences.

Question 19

A corporation must recognize a valuation allowance, if based on available evidence; it is more likely than not that the deferred liability will not be realized.

Question 20

Permanent differences arise due to timing differences between the corporation's pretax financial income and taxable income, which results in deferred tax assets and liabilities.

Question 21

For the year ended December 31, 2014, the Bowling Green Company reported income of $350,000 before provision for income tax. In arriving at taxable income for income tax purposes, the following differences were identified:
Assuming a corporate income tax rate of 30%, Huntsville's current income tax liability as of December 31, 2014, is

A) $ 83,400
B) $101,400
C) $113,400
D) $129,000
E) none of these

Question 22

Which of the following transactions would typically result in the creation of a deferred tax liability?

A) Rents received in advance are taxable when received but are not recognized in pretax financial income until earned.
B) Gross profit on installment sales is recognized currently in pretax financial income but is not taxable for income tax purposes until cash is received.
C) Losses recognized in pretax accounting income from an investment in a subsidiary are accounted for by the equity method but not deductible for income tax purposes until the investment is sold.
D) A contingent liability is recognized as an expense currently in pretax financial income but not deductible for income tax purposes until paid.

Question 23

Interperiod tax allocation is required for all of the following situations except

A) warranty expenses that are expensed in the year of sale for accounting purposes but are deductible in the year of payment for tax purposes
B) percentage depletion that exceeds cost depletion for the current period
C) MACRS depreciation for tax purposes and straight-line method for accounting purposes
D) installment sales method for tax purposes and accrual method for accounting purposes

Question 24

In 2014, Waterford Corporation reported pretax financial income of $400,000. Included in that pretax financial income was $150,000 of nontaxable life insurance proceeds received as a result of the death of an officer; $120,000 of warranty expenses accrued but unpaid as of December 31, 2014; and $10,000 of bad debts estimated to be uncollectible (but not written off as of December 31, 2014). Assuming that no income taxes were previously paid during the year and an income tax rate of 30%, the amount of income taxes payable on December 31, 2014, would be

A) $ 42,000
B) $108,000
C) $114,000
D) $126,000

Question 25

The amount owed the IRS is recorded in the accounting records in which account?

A) Income Tax Expense
B) Income Tax Liability
C) Deferred Tax Expense
D) Deferred Tax Liability

Question 26

Bourne Company received rent in advance of $9,000 on December 31, 2014, which was taxable when received for income tax purposes. The company's effective tax rate was 30%, and this was the only temporary difference. Which of the following should be reported on the December 31, 2014 balance sheet?

A) $9,000 as a current deferred tax liability
B) $2,700 as a current deferred tax liability
C) $2,700 as a current deferred tax asset
D) $9,000 as a current deferred tax asset

Question 27

All of the following involve a temporary difference for purposes of income tax allocation except

A) interest on municipal bonds
B) gross profit on installment sales for tax purposes
C) MACRS depreciation for tax purposes and straight-line for accounting purposes
D) product warranty expenses

Question 28

Which of the following statements regarding current and deferred income taxes is not correct?

A) The amount of income tax expense must be allocated to various components of comprehensive income.
B) The income tax obligation is determined by applying the historical tax rates to the taxable income for the year.
C) The valuation allowance account is subtracted from the deferred tax asset account on the balance sheet.
D) Rent received in advance that will be earned within the next 12 months results in the creation of a current deferred tax asset.

Question 29

During its first year of operations, 2014, the Cocoa Company reported both a pretax financial and a taxable loss of $300,000. The income tax rate is 30% for the current and future years. Due to a sufficient backlog of sales orders, Cocoa did not establish a valuation allowance to reduce the $90,000 deferred tax asset. However, early in 2015, one major customer, representing 60% of the 2015 year-end sales backlog, went bankrupt. Cocoa now believes that it is more likely than not that 75% of the deferred tax asset will not be realized. The entry to record the valuation allowance would be

A) Income Tax Expense $\quad$$\quad$ 67,500
Deferred Tax Asset $\quad$$\quad$ 67,500

B) Income Tax Benefit from Operating
Loss Carryforward $\quad$$\quad$$\quad$$\quad$ 67,500
Deferred Tax Asset $\quad$$\quad$$\quad$$\quad$$\quad$ 67,500

C) Income Tax Expense $\quad$$\quad$$\quad$ 67,500
Allowance to Reduce Deferred
Tax Asset to Realizable Value $\quad$$\quad$$\quad$ 67,500

D) Allowance to Reduce Deferred Tax
Asset to Realizable Value $\quad$$\quad$ 67,500
Income Tax Expense $\quad$$\quad$ 67,500

Question 30

As of December 31, 2014, the Williamsburg Company reported a deferred tax asset of $60,000 related to accrued, unpaid warranty costs. However, since profits have been declining, Williamsburg decides that it is more likely than not that $24,000 of the deferred tax asset will not be realized. The entry to record the valuation allowance would include a

A) debit to Income Tax Expense for $60,000
B) credit to Income Tax Expense for $24,000
C) debit to Allowance to Reduce Deferred Tax Asset to Realizable Value for $24,000
D) credit to Allowance to Reduce Deferred Tax Asset to Realizable Value for $24,000

Question 31

Temporary differences arise when revenues or gains are included in pretax financial income

A) I
B) II
C) III
D) IV

Question 32

Exhibit 18-1 On December 31, 2013, Fredericksburg, Inc. had no temporary differences that created deferred income taxes. On January 2, 2014, a new machine was purchased for $30,000. Straight-line depreciation over a four-year life (no residual value) was used for financial accounting. Depreciation expense for tax purposes was $11,000 in 2014, $9,000 in 2015, $6,000 in 2016, and $4,000 in 2013. In each year, the income tax rate was 20% and Fredericksburg had no other items that created differences between pretax financial income and taxable income. Fredericksburg reported the following pretax financial income for 2014 through 2017: Refer to Exhibit 18-1. The entry to record income taxes on December 31, 2015, would include a

A) debit to Deferred Tax Liability for $300
B) credit to Income Taxes Payable for $8,000
C) debit to Income Tax Expense for $7,700
D) credit to Deferred Tax Liability for $300

Question 33

Temporary differences arise when expenses or losses are deducted to compute taxable income

A) I
B) II
C) III
D) IV

Question 34

Pruett Corporation began operations in 2013 and appropriately recorded a deferred tax liability at the end of 2013 and 2014 based on the following depreciation temporary differences between pretax financial income and taxable income:
The income tax rate for 2013 and 2014 was 30%. In February 2015, due to budget constraints, Congress enacted an income tax rate of 35%. The journal entry required to adjust the Deferred Tax Liability account in February 2015 would be

A) Loss on Adjustment of Deferred Taxes $\quad$ 30
Deferred Tax Liability $\quad$$\quad$ 30

B) Deferred Tax Liability $\quad$$\quad$$\quad$ 30
Gain on Change in Tax Rates $\quad$$\quad$$\quad$ 30

C) Income Tax Expense $\quad$$\quad$ 10
Deferred Tax Liability $\quad$$\quad$$\quad$$\quad$ 10

D) Income Tax Expense $\quad$$\quad$ 30
Deferred Tax Liability $\quad$$\quad$$\quad$$\quad$ 30

Question 35

All of the following involve a temporary difference for purposes of income tax allocation except

A) revenues or gains that are included in pretax financial income prior to the time they are included in taxable income
B) expenses or losses that are deducted to compute taxable income prior to the time they are deducted to compute pretax financial income
C) revenues or gains that are included in taxable income prior to the time they are included in pretax financial income
D) deductions that are allowed for income tax purposes but that do not qualify as expenses under generally accepted accounting principles

Question 36

Each of the following can result in a temporary difference between pretax financial income and taxable income except

A) depreciation expense
B) product warranty costs
C) percentage depletion in excess of cost depletion on wasting assets
D) contingent liabilities

Question 37

When Congress changes the tax laws or rates, a corporation's deferred tax liability and asset accounts

A) are not adjusted
B) are adjusted as of the end of the year in which the change occurred
C) are adjusted as of the beginning of the year in which the change occurred
D) are adjusted using the average of the old and new tax rates

Question 38

In 2014, its first year of operations, Wilber Company reported pretax accounting income of $60,000. Included in the $60,000 was an expense for accrued, unpaid warranty costs of $8,000, which are not deductible until paid for income tax purposes. Wilber's income tax rate was 20%. The entry to record the income tax expense would include a

A) credit to Income Tax Expense for $12,000
B) credit to Income Taxes Payable for $12,000
C) credit to Deferred Tax Liability for $1,600
D) debit to Deferred Tax Asset for $1,600

Question 39

Exhibit 18-1 On December 31, 2013, Fredericksburg, Inc. had no temporary differences that created deferred income taxes. On January 2, 2014, a new machine was purchased for $30,000. Straight-line depreciation over a four-year life (no residual value) was used for financial accounting. Depreciation expense for tax purposes was $11,000 in 2014, $9,000 in 2015, $6,000 in 2016, and $4,000 in 2013. In each year, the income tax rate was 20% and Fredericksburg had no other items that created differences between pretax financial income and taxable income. Fredericksburg reported the following pretax financial income for 2014 through 2017: Refer to Exhibit 18-1. The entry to record income taxes on December 31, 2016, would include a

A) debit to Deferred Tax Asset for $300
B) credit to Income Taxes Payable for $7,700
C) debit to Income Tax Expense for $8,000
D) debit to Deferred Tax Liability for $300

Question 40

A deferred tax asset would result if

A) a company recorded a tax penalty in 2014 that it paid in 2015
B) a company recorded more taxable depreciation in 2014 for an asset acquired in 2008
C) a company recorded more warranty expense in 2014 than cash paid in 2014 for warranty repairs
D) a company recorded more interest revenue in 2014 than cash received in 2014 for interest

Question 41

Life insurance proceeds payable to a corporation upon the death of an insured employee are an example of

A) intraperiod tax allocation
B) interperiod tax allocation
C) a permanent difference
D) a temporary difference

Question 42

The Pink Diamonds Company installs fire alarm systems for large manufacturing enterprises and golf courses. Due to the design of their systems, some projects frequently extend over a two-year period. Pink Diamonds uses the percentage-of-completion method for financial accounting purposes and the completed-contract method for tax purposes. As of December 31, 2014, all projects were completed. The following information relates to projects started but not completed as of December 31, 2015:

Assuming an income tax rate of 30%, what amount should be included in the deferred tax liability account at December 31, 2015?

A) $ 70,000
B) $ 90,000
C) $105,000
D) $350,000

Question 43

Lewes Company appropriately uses the installment sales method for tax purposes and the accrual method for revenue recognition for accounting purposes. Pertinent data at December 31, 2014, the close of the first year of operations, are as follows:
Lewes's tax rate is 30%. What amount should be included in the deferred tax account at December 31, 2014 for these installment sales?

A) $150,000 deferred tax asset
B) $150,000 deferred tax liability
C) $500,000 deferred tax asset
D) $500,000 deferred tax liability

Question 44

Permanent differences impact

A) current deferred taxes
B) current tax liabilities
C) deferred tax assets
D) deferred tax liabilities

Question 45

Which one of the following requires interperiod tax allocation?

A) premium paid on key executives' life insurance
B) warranty expenses related to a three-year warranty period
C) interest received on municipal obligations
D) percentage depletion in excess of cost depletion

Question 46

At the end of its first year of operations on December 31, 2014, the Brandon Company reported taxable income of $100,000 and had a pretax financial loss of $60,000. Differences between taxable income and pretax financial income included interest revenue received from municipal obligations of $20,000 and warranty expense accruals of $180,000. Warranty expenses of $90,000 are expected to be paid in 2015 and $110,000 in 2016. The enacted income tax rates for 2014, 2015, and 2016 are 30%, 35%, and 40%, respectively. The journal entry to record income tax expense on December 31, 2014, would be

A) Deferred Tax Asset $\quad$$\quad$$\quad$ 75,500
Income Taxes Payable $\quad$$\quad$ 30,000
Income Tax Benefits from
Operating Loss Carryforward $\quad$$\quad$ 45,500

B) Deferred Tax Asset $\quad$$\quad$ 30,000
Income Taxes Payable $\quad$$\quad$$\quad$$\quad$ 30,000

C) Income Tax Expense $\quad$$\quad$$\quad$ 30,000
Income Taxes Payable $\quad$$\quad$ 30,000

D) Deferred Tax Asset $\quad$$\quad$$\quad$ 105,500
Income Taxes Payable $\quad$$\quad$ 30,000
Income Tax Benefit from
Operating Loss Carryforward $\quad$$\quad$ 75,500

Question 47

The Flintstone Company incurred the following expenses in 2014, which are reported differently for financial reporting purposes and taxable income:

If the tax rate is 40%, the total temporary difference is

A) $ 20,000
B) $ 28,000
C) $ 70,000
D) $150,000

Question 48

During its first year of operations ending on December 31, 2014, the Dakota Company reported pretax accounting income of $600,000. The only difference between taxable income and accounting income was $80,000 of accrued warranty costs. These warranty costs are expected to be paid as follows:


Assuming an income tax rate of 30% in 2014, Dakota should report income tax expense on its 2014 income statement in the amount of

A) $175,000
B) $180,000
C) $185,000
D) $204,000

Question 49

On January 1, 2014, Bedrock Company began recognizing revenues from all sales under the accrual method for financial reporting purposes and under the installment sales method for income tax purposes. Bedrock reported the following gross margin on sales for 2014 and 2015:


The enacted tax rate for both 2014 and 2015 was 30%. Assuming there are no other temporary differences, Bedrock's December 31, 2015 balance sheet would report a deferred tax liability of

A) $ 60,000
B) $120,000
C) $180,000
D) $450,000

Question 50

Which one of the following statements regarding operating losses is false?

A) The tax benefit of an operating loss carryback is recognized in the period of loss as a current receivable on the balance sheet.
B) Temporary differences and operating loss carryforwards are accounted for similarly.
C) The journal entry to recognize an operating loss carryback would include a credit to Income Tax Benefit from Operating Loss Carryback.
D) The tax benefit of an operating loss carryforward is to be recognized in the period of loss as a current receivable.

Question 51

Which of the following would not result in a permanent difference between pretax financial income and taxable income?

A) product warranty costs
B) premiums paid for life insurance policies on officers of the company
C) interest revenue received from investments in municipal bonds
D) percentage depletion in excess of cost depletion on wasting assets

Question 52

When accounting for the current impact of loss carrybacks and carryforwards it is proper to

A) recognize the tax benefit of the operating loss carryback and carryforward as an asset
B) recognize the tax benefit of the operating loss carryforward as an asset
C) recognize the tax benefit of the operating loss carryback as a deferred liability
D) recognize the tax benefit of the operating loss carryforward as a deferred liability

Question 53

An operating loss carryforward occurs when

A) prior pretax financial income is insufficient to offset the current period operating loss
B) prior taxable income is insufficient to offset the current period operating loss
C) future pretax financial income is insufficient to offset a current period operating loss
D) future taxable income is insufficient to offset a current period operating loss

Question 54

Shane Company uses an accelerated depreciation method for income tax purposes and the straight-line depreciation method for financial reporting purposes. As of December 31, 2014, Shane has a deferred tax liability balance related to depreciation temporary differences of $80,000. In 2015, depreciation for income tax purposes was $360,000, while depreciation for financial reporting purposes was $300,000. If the income tax rate is 30%, no other temporary or permanent differences exist, and taxable income is $400,000, the entry to record income tax expense on December 31, 2015, would include a

A) debit to Income Tax Expense for $138,000
B) credit to Income Taxes Payable for $138,000
C) debit to Deferred Tax Asset for $120,000
D) credit to Deferred Tax Liability for $120,000

Question 55

Revenue from installment sales is recognized in the period received for tax purposes and recognized in the period earned for accounting purposes. If these periods are different, this is an example of a

A) permanent difference that gives rise to interperiod tax allocation
B) permanent difference that does not give rise to interperiod tax allocation
C) temporary difference that gives rise to interperiod tax allocation
D) temporary difference that does not give rise to interperiod tax allocation

Question 56

In 2014, its first year of operations, Richmond Corporation reported pretax financial income of $80,000 for the year ended December 31. Richmond depreciates its fixed assets using an accelerated cost recovery method for tax purposes and straight-line depreciation for financial reporting. On assets acquired in 2014, the following are differences between depreciation on the tax return and accounting income during the asset's five-year life:


Assuming no other temporary or permanent differences, Richmond's December 31, 2014 balance sheet should include

A) I
B) II
C) III
D) IV

Question 57

Permanent differences between pretax financial income and taxable income result when

A) a company engages in fraudulent activity
B) the SEC imposes a penalty on a company
C) the IRS imposes interest on a late payment
D) the FTC changes how an advertisement can be shown on TV even though the company has paid for the ad

Question 58

Interperiod income tax allocation is based on the assumption that

A) permanent differences ultimately reverse and require interperiod tax allocation
B) permanent differences do not have deferred tax consequences
C) total income tax expense should be apportioned among numerous line items on the income statement
D) the amount of income tax expense reported on the income statement should be the same as the income tax obligation on the corporation's income tax return

Question 59

In accounting for income taxes, percentage depletion in excess of cost depletion is an example of

A) intraperiod income tax allocation
B) a temporary difference
C) interperiod income tax allocation
D) a permanent difference

Question 60

In 2014, the Puerto Rios Company received insurance proceeds of $300,000 payable upon the death of its previous top executive officer. For financial reporting purposes, Puerto Rios included the $300,000 in pretax accounting income. The life insurance proceeds are exempt from income taxes. Assuming an income tax rate of 35%, what should be reported as deferred income taxes in the 2014 income statement of Puerto Rios for this event?

A) $ 0
B) $105,000 deferred tax asset
C) $105,000 deferred tax liability
D) $195,000 deferred tax liability

Question 61

Which of the following are required disclosures related to uncertain tax positions?

A) the management discussion of the tax position in which management believes with reasonable probability that significant changes will take place within 12 months
B) a reconciliation of beginning and ending balances of the unrecognized tax benefits
C) the total amount of the unrecognized tax benefit that would affect the effective tax rate if recognized.
D) All of these choices

Question 62

Which one of the following transactions would result in the creation of a noncurrent deferred tax liability?

A) interest received on municipal bonds
B) a contingent liability expensed in the current period that is expected to require a cash payment in three years
C) royalties received in advance that are taxable when received, but that will be earned within the next three months
D) using an accelerated depreciation method for income tax purposes and the straight-line method for financial reporting purposes

Question 63

At December 31, 2014, the Blue Agave Company had a current deferred tax asset of $60,000, arising from cash for magazine subscriptions received and taxed in 2014 but that will be recognized as income for accounting purposes in 2015; a noncurrent deferred tax liability of $160,000 arising from an excess of MACRS tax depreciation over straight-line accounting depreciation of plant assets; and a long-term deferred tax asset of $80,000, arising from contingency expenses for accounting purposes that will be tax deductible when paid (estimated to be in 2016). The 2015 pretax financial income and taxable income for Blue Agave are as follows:


Required:
Prepare the income tax journal entry for the Blue Agave Company at the end of 2015.

Question 64

The acceptable balance sheet classifications for deferred tax assets and deferred tax liabilities under GAAP and IFRS are

A) I
B) II
C) III
D) IV

Question 65

Assuming there are no prior period adjustments during the fiscal year, net income would be affected by

A) I
B) II
C) III
D) IV

Question 66

For each item listed below, indicate whether it involves a:
a.permanent difference.
b.temporary difference that will result in future deductible amounts (giving rise to deferred tax assets).
c.temporary difference that will result in future taxable amounts (giving rise to deferred tax liabilities).

Required:
Match each item to its descriptive phrase by placing the appropriate letter in the space provided.

Question 67

The Chance Company began operations in 2014 and, for that calendar year, reported an operating loss of $200,000. Due to sufficient verifiable positive evidence, no valuation allowance was established to reduce the deferred tax asset as of December 31, 2014. During 2015, Chance reported pretax accounting income of $375,000. Assuming an income tax rate of 35%, what should Chance record in 2015 as income tax payable at the end of 2015?

A) $ 0
B) $ 70,000
C) $ 61,250
D) $131,250

Question 68

The Wyatt Company reports the following for both pretax financial and taxable income:

Wyatt uses the carryback provision for net operating losses when possible. Congress has enacted a tax rate for 2018 and future years of 40%. The entry on December 31, 2017, to record income tax expense would include a

A) debit to Income Tax Refund Receivable for $24,000
B) debit to Income Tax Refund Receivable for $45,000
C) credit to Income Tax Benefit from Operating Losses for $45,000
D) credit to Income Tax Expense for $45,000

Question 69

Intraperiod tax allocation would be appropriate for

A) an extraordinary gain
B) a loss from operations of a discontinued segment
C) retrospective adjustments
D) all of these

Question 70

Smyrna Company had financial and taxable incomes as follows:

Question 71

The presentation of the combination or "offsetting" of noncurrent deferred tax assets and liabilities is

A) seldom allowed in financial reporting
B) required by FASB because of the close relationship between deferred tax assets and liabilities
C) required by FASB to avoid the detailed analysis necessary for more refined classification methods
D) all of the above

Question 72

Which one of the following would require interperiod tax allocation?

A) percentage depletion in excess of cost depletion
B) premiums paid on a life insurance policy of which the company is the beneficiary
C) interest on state municipal bonds
D) investment income recognized by the equity method for accounting purposes but as income when received for tax purposes

Question 73

The recognition of gross profit on installment sales at point of sale for financial reporting purposes but reporting the profit when the cash is received for income tax purposes results in deferred taxes reported in which section of the balance sheet?

A) current liabilities section
B) current assets section
C) noncurrent liabilities section
D) noncurrent assets section

Question 74

Which one of the following requires intraperiod tax allocation?

A) installment sales for tax purposes and accrued revenue recognition for accounting purposes
B) the excess of accelerated depreciation for tax purposes over depreciation for accounting purposes
C) interest income on municipal obligations
D) prior period adjustments

Question 75

On December 31, 2014, the Town Hall Company had a deferred tax liability balance of $12,570, arising from an excess of MACRS depreciation for tax purposes over straight-line depreciation for accounting purposes. The tax effects of that timing difference are expected to reverse in the following years:
On January 27, 2015, Congress raised the effective income tax rate to 38% for all future years, including the current year, 2015.
Required:
Prepare the entry to record any adjustments necessary due to the income tax rate increase on January 27, 2015.

Question 76

In applying intraperiod income tax allocation to discontinued operations, extraordinary items, retrospective adjustments, and prior period adjustments, what tax rate should be used?

A) expected future income tax rate
B) average income tax rate
C) marginal (incremental) income tax rate
D) normal income tax rate

Question 77

Income taxes for financial accounting purposes are apportioned to each of the following items except

A) extraordinary gains and losses
B) discontinued operations
C) other revenues and expenses
D) prior period adjustments

Question 78

On December 31, 2013, Jefferson Lake, Inc. reported a deferred tax liability of $1,875, based on the following schedule of future taxable amounts and enacted tax rates:
On February 7, 2014, Congress amended a previously passed tax law. The amendment changed the tax rate to 35% for 2014 and all future years.
Required:
Prepare the income tax journal entry for Jefferson Lake, Inc. necessary on February 7, 2014.

Question 79

Moore Company reported the following operating results during its first three years of operations:


No permanent or temporary differences occurred during these fiscal periods. Assuming an income tax rate of 35%, Moore should report a current income tax liability as of December 31, 2016, in the amount of

A) $ 0
B) $21,000
C) $84,000
D) $91,000

Question 80

Which of the following is false concerning deferred tax assets and liabilities?

A) a corporation must separate its deferred tax liabilities into current and noncurrent groups
B) a corporation must separate its deferred tax assets into current and noncurrent groups
C) a corporation must combine the amounts in current groups
D) a corporation must not combine the amounts in current groups