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Exam 16: Accounting for Income Taxes

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Question 31

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

A) Interest income on municipal bonds.
B) Proceeds from life insurance received due to death of an executive.
C) Prepaid rent.
D) None of the above.

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

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Question 32

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Why are differences in reported amounts for deferred taxes are among the most frequent between IFRS and U.S. GAAP, despite the fact that the two follow similar approaches for accounting for taxation?

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Despite the similar approaches for accou...

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Question 33

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How are deferred tax assets arising from net operating loss carryforwards classified with regard to GAAP accounting for income taxes?

Sometimes a temporary difference will produce future deductible amounts. Explain what is meant by future deductible amounts. Describe at least one situation that has this effect. How are future deductible amounts recognized in the financial statements?

The way companies deal with uncertainty in tax positions is prescribed by GAAP in FASB ASC 740-10: Income Taxes-Overall (previously FASB Interpretation No. 48 (FIN 48)). Describe the two-step process provided by GAAP (previously FIN 48).

For reporting purposes, current deferred tax assets and current deferred tax liabilities are:

The following information is for James Industries' first year of operations. Amounts are in millions of dollars. In 2013 the company's pretax accounting income was $67. The enacted tax rate for 2012 and 2013 is 40%, and it is 35% for years after 2013. Required: Prepare a journal entry to record the income tax expense for the year 2013. Show well-labeled computations for income tax payable and the change in the deferred tax account.

Giada Foods reported $940 million in income before income taxes for 2013, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for 2013 was 35%, but the enacted rate for years after 2013 is 40%. The balance in the deferred tax liability in the December 31, 2013, balance sheet is:

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 2012, Peridot elected to carry back its operating loss. The enacted income tax rate was 40%. In its 2013 income statement, what amount should Peridot report as income tax expense?

Franklin Freightways experienced ($ in millions) a current:

Estimate the effective tax rate for Black Inc. in 2013. Why is it different from the 35% federal statutory rate?

For classification purposes, a valuation allowance:

EZ, Inc., reports pretax accounting income of $400,000, but due to a single temporary difference, taxable income is $500,000. At the beginning of the year, no temporary differences existed. EZ is subject to a tax rate of 40%. Required: Prepare the appropriate journal entry to record EZ's income taxes. Show well-labeled computations.

Which of the following must Franklin Freightways disclose related to the income tax expense reported in the income statement ($ in millions) ?

How are deferred tax assets and deferred tax liabilities reported in a classified balance sheet?

Madison Company has taken a position in its tax return to claim a tax credit of $60 million (direct reduction in taxes payable) and has determined that its sustainability is "more likely than not," based on its technical merits. The tax credit would be a direct reduction in current taxes payable. Madison believes the likelihood that a $60 million, $36 million, or $12 million tax benefit will be sustained is 25%, 30%, and 45%, respectively. Madison's taxable income is $510 million for the year. Its effective tax rate is 40%. What is Madison's income tax expense for the year?

The Kelso Company had the following operating results: What is the income tax refund receivable?

Pretax accounting income for the year ended December 31, 2013, was $50 million for Truffles Company. Truffles' taxable income was $60 million. This was a result of differences between straight-line depreciation for financial reporting purposes and MACRS for tax purposes. The enacted tax rate is 30% for 2013 and 40% thereafter. What amount should Truffles report as the current portion of income tax expense for 2013?

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.

Patterson Development sometimes sells property on an installment basis. In those cases, Patterson reports income in its income statement in the year of the sale but reports installment income by the installment method on the tax return. Installment income in 2013 was $120 million, which Patterson expects to collect equally over the next four years. The tax rate is 30%, but based on an enacted law, is scheduled to become 40% in 2015. Patterson's pretax accounting income for the 2013 income statement was $530 million. Of this amount, $30 million is non-taxable revenue from proceeds of a life insurance policy. There were no differences between accounting income and taxable income other than those described above and no cumulative temporary differences existed at the beginning of the year. Required: 1. Prepare the appropriate journal entry to record Patterson's 2013 income taxes. Show calculations. 2. What is Patterson's 2013 net income?