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Exam 16: Accounting for Income Taxes

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Question 51

Multiple Choice

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Which of the following circumstances creates a future deductible amount?

A) Earning of non-taxable interest on municipal bonds
B) Sales of property (installment method for tax purposes)
C) Prepaid operating expenses
D) Accrued warranty expenses

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

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Question 52

Multiple Choice

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Franklin Freightways experienced ($ in millions) a current:

A) Tax liability of $66.
B) Tax liability of $36.
C) Tax liability of $70.6.
D) Tax benefit of $10 due to the NOL.($200 + 5 $40) 40% = $66

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

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Question 53

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The tax benefit of a net operating loss carried back two years represents a current receivable for income tax to be refunded.

Recognizing tax benefits in a loss year due to a net operating loss carryforward requires

Which of the following usually results in an increase in a deferred tax liability?

What is the justification for a corporation determining income for financial reporting purposes differently than the way it is determined for tax purposes?

Suppose that, in 2010, legislation revised the income tax rates, so that Isaac would be taxed in 2011 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 2010, what deferred tax liability would Isaac report in its year-end 2010 balance sheet?

Woody Corp. had taxable income of $8,000 in the current year. The amount of MACRS depreciation was $3,000 while the amount of depreciation reported in the income statement was $1,000. Assuming no other differences between tax and accounting income, Woody's pretax accounting income was:

The tax effect of a net operating loss (NOL) carryback usually:

A result of interperiod tax allocation is that:

In the statement of cash flows, using the indirect method for determining cash flows from operating activities, a decrease in deferred tax liabilities is:

The information that follows pertains to Julia Company: (a.) Temporary differences for the year 2009 are summarized below. Expenses deducted in the tax return, but not included in the income statement: Expenses reported in the income statement, but not deducted in the tax return: (b.) No temporary differences existed at the beginning of 2009. (c.) Pretax accounting income was $50,000 and taxable income was $8,000 for 2009. (d.) There were no permanent differences. (e.) The tax rate is 30%. Required: Prepare the journal entry to record the tax provision for 2009. Provide supporting computations. $\begin{array} { l r } \text { Depreciation } & \$ 60,000 \\\text { Prepaid expense } & 8,000\end{array}$ $\text { Warranty expense } 9,000$

Pretax accounting income for the year ended December 31, 2009, 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 2009 and 40% thereafter. What amount should Truffles report as the current portion of income tax expense for 2009?

Tobac Company reported a pretax operating loss of $50,000 for financial reporting and tax purposes in 2009. The enacted tax rate is 40% for 2009 and subsequent years. Assume that Tobac requests a refund of taxes already paid by electing a loss carryback. Taxable income, tax rates, and income taxes paid in Tobac's first four years of operations were as follows: Required: (1.) Prepare the journal entry to record Tobac's income taxes for the year 2009. Show well-labeled computations. (2.) Compute Tobac's net loss for 2009.

Alamo Inc. had $300 million in taxable income for the current year. Alamo also had a decrease in deferred tax assets of $30 million and an increase in deferred tax liabilities of $60 million. The company is subject to a tax rate of 40%. The total income tax expense for the year was:

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

Expenditures currently deducted in the tax return but not included with expenses in the income statement until subsequent years create deferred tax liabilities.

Clinton Corp. had the following pretax income (loss) over its first three years of operations: For each year there were no deferred income taxes and the tax rate was 40%. For its 2008 tax return, Clinton did not elect a loss carryback. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2008. What was Clinton's income tax expense in 2009?

The information below pertains to Mondavi Corporation: (a.) For the current year temporary differences existed between the financial statement carrying amounts and the tax basis of the following: (b.) No temporary differences existed at the beginning of the year. (c.) Pretax accounting income was $300,000,000 and taxable income was $120,000,000 for the year and the tax rate is 40%. Required: Prepare one journal entry to record the tax provision for the current year. Provide supporting computations. $\begin{array}{crrr}&\text { Carrying } && \text { Future taxable or } \\&\text { Amount } & \text { Tax Basis } & \text { (deductible) amount }\\\text { Buildings and }\\\text { equipment } & \$ 60,000,000 & \$ 45,000,000 & \$ 15,000,000 \\\text { Prepaid insurance } & 1,000,000 & 0 & 1,000,000\\\text { contingency }& 10,000,000 & 0 &(10,000,000)\end{array}$

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.