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Exam 16: Accounting for Income Taxes

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Question 61

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In the current year, Bruno Corporation collected rent of $3,600,000. For income tax reporting, the rent is taxed when collected. For financial reporting, the rent is recognized as income in the period earned. At the end of the current year, the unearned portion of the rent collected in the current year amounted to $400,000. Bruno had no temporary differences at the beginning of the current year. Assume an income tax rate of 30%. Required: The current year's income tax liability from the tax return is $800,000. Prepare the journal entry to record income taxes for the year. Show well-labeled computations.

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Question 62

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What would Kent's income tax expense be in the year 2013?

A) $42,300.
B) $45,900.
C) $49,500.
D) None of the above is correct.

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

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Question 63

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

Brook Company has taken a position on its tax return to claim a tax credit of $30 million (direct reduction in taxes payable) and has determined that its sustainability is "more likely than not" based on its technical merits. Brook's management has developed the probability table shown below of all possible material outcomes: Brook's taxable income is $300 million for the year, and its effective tax rate is 40%. The tax credit would be a direct reduction in current taxes payable. Required: 1. At what amount would Brook measure the tax benefit in its income statement? 2. Prepare the appropriate journal entry for Brook to record its income taxes for the year.

According to GAAP for accounting for income taxes, when a company has a net operating loss carryforward:

Puritan Corp. reported the following pretax accounting income and taxable income for its first three years of operations: Puritan's tax rate is 40% for all years. As of December 31, 2013, Puritan was certain that it would recover the full tax benefit of the NOL that remained after the operating loss carryback. What would Puritan report as net income for 2014?

Future taxable amounts result in deferred tax assets.

In its first year of operations, Woodmount Corporation reported pretax accounting income of $500 million for the current year. Depreciation reported in the tax return in excess of depreciation in the income statement was $60 million. The excess tax will reverse itself evenly over the next three years. The current year's tax rate of 40% will be reduced under the current law to 35% next year and 30% for all subsequent years. At the end of the current year, the deferred tax liability related to the excess depreciation will be:

Typical Corp. reported a deferred tax liability of $6,000,000 for the year ended December 31, 2012, when the tax rate was 40%. The deferred tax liability was related to a temporary difference of $15,000,000 caused by an installment sale in 2012. The temporary difference is expected to reverse in 2014 when the income deferred from taxation will become taxable. There are no other temporary differences. Assume a new tax law passed in 2013 and the tax rate, which will remain at 40% through December 31, 2013, will become 48% for tax years beginning after December 31, 2013. Pretax accounting income and taxable income for the year 2013 is $30,000,000. Required: Prepare a compound journal entry to record Typical's income tax expense for the year 2013. Show well-labeled computations.

What is Hobson's income tax payable for the current year?

In 2013, Bodily Corporation reported $300,000 pretax accounting income. The income tax rate for that year was 30%. Bodily had an unused $120,000 net operating loss carryforward from 2011 when the tax rate was 40%. Bodily's income tax payable for 2013 would be

Which of the following creates a deferred tax asset?

Ignoring operating expenses and additional sales in 2014, what deferred tax liability would Isaac report in its year-end 2014 balance sheet?

Tobac Company reported an operating loss of $132,000 for financial reporting and tax purposes in 2013. The enacted tax rate is 40% for 2013 and all future years. Assume that Tobac elects a loss carryback. No valuation allowance is needed for any deferred tax assets. Taxable income, tax rates, and income taxes paid in Tobac's first four years of operations were as follows: Required: 1.) Prepare a compound journal entry to record Tobac's tax provision for the year 2013. Show well-labeled computations. 2.) Compute Tobac's net loss for 2013.

The effect of a change in tax rates:

Will LMC report $819.9 million as a liability in its balance sheet at December 31, 2013? Explain.

Estimated employee compensation expenses earned during the current period but expected to be paid in the next period causes:

Franklin's balance sheet at the end of its first year would report:

Suppose that, in 2014, legislation revised the income tax rates so that Isaac would be taxed in 2015 and beyond at 40%, rather than 30%. Assume that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2014, what deferred tax liability would Isaac report in its year-end 2014 balance sheet?

What disclosures for deferred taxes, pertaining to the income statement, are required by GAAP regarding accounting for income taxes?