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Exam 6: Accounting for Income Taxes

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Question 51

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Which of the following statements best describes the disclosure of a company's deferred tax assets and liabilities?

A) Deferred tax assets and liabilities must be separately disclosed in the balance sheet.
B) All deferred tax assets and liabilities are treated as noncurrent and can be netted and disclosed as one aggregate amount on the balance sheet.
C) Current deferred tax assets and liabilities and noncurrent deferred tax assets and liabilities can always be netted on the balance sheet.
D) All deferred tax assets and liabilities are treated as noncurrent and can be netted on the balance sheet only if they arise in the same tax jurisdiction.

E) A) and B)
F) None of the above

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Question 52

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As part of its uncertain tax position assessment, Madison Corporation records interest and penalties related to its unrecognized tax benefits of $1,000,000. Which of the following statements about recording this amount is most correct?

A) Madison must record the expense separate from its income tax provision.
B) Madison can elect to include the expense as part of its income tax provision or record the expense separate from its income tax provision, provided the company discloses which option it chose.
C) Madison must record the expense in its income tax provision.
D) Madison does not record the expense until it is paid.

E) A) and C)
F) None of the above

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Question 53

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Frost Corporation reported pretax book income of $3,020,000. Included in the computation were favorable temporary differences of $204,000, unfavorable temporary differences of $352,000, and unfavorable permanent differences of $50,200. Compute Frost's deferred income tax expense or benefit.

DeWitt Corporation reported pretax book income of $805,600. Tax depreciation exceeded book depreciation by $402,800. In addition, the company received $100,700 of tax-exempt municipal bond interest. DeWitt used a net operating loss carryover of $201,400 to offset taxable income in the current year. Compute DeWitt's book equivalent of taxable income. Use this number to compute DeWitt's total income tax provision or benefit for the current year.

Angel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Angel subtracted a dividends received deduction of $25,000 in computing its current-year taxable income. Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized.

Manchester Corporation recorded the following deferred tax assets and liabilities: What will be the balances in the deferred tax asset and deferred tax liability accounts on Manchester Corporation's balance sheet?

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:

Suppose that on December 22, 2019 Congress increased the corporate tax rate from 21 percent to 25 percent effective in 2020. The tax rate change will affect only deferred tax assets and liabilities that arise in 2020 and thereafter.

Which of the following items would likely not be included in the computation of a company's structural effective tax rate?

MAC, Incorporated, completed its first year of operations with a pretax loss of $300,000. The tax return showed a net operating loss of $500,000. The $200,000 book-tax difference results from excess tax depreciation over book depreciation. Management has determined that they should record a valuation allowance equal to the net deferred tax asset. Prepare the journal entries to record the deferred tax provision and the valuation allowance.

Entities classify all deferred tax assets and liabilities as noncurrent on the balance sheet.

ASC 740 is the sole source of rules related to accounting for income taxes.

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

In general, a temporary difference reflects a difference in the financial accounting basis and tax basis of an asset or liability on the balance sheet.

Smith 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. Smith's deferred income tax expense or benefit would be:

Manchester Corporation recorded the following deferred tax assets and liabilities: What will be the balances in the deferred tax asset and deferred tax liability accounts on Manchester Corporation's balance sheet?

Green Corporation reported pretax book income of $1,024,000. During the current year, the net reserve for warranties increased by $51,200. In addition, tax depreciation exceeded book depreciation by $106,000. Finally, Green subtracted a dividends received deduction of $25,600 in computing its current-year taxable income. Green's cash tax rate is:

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

Robinson Company had a net deferred tax liability of $34,340 at the beginning of the year, representing a net taxable temporary difference of $101,000 (taxed at 34 percent) . During the year, Robinson reported pretax book income of $401,000. Included in the computation were favorable temporary differences of $51,000 and unfavorable temporary differences of $20,500. During the year, Congress reduced the corporate tax rate to 21 percent. Robinson's deferred income tax expense or benefit for the current year would be: