Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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:

Accepted Answer

A)   Net deferred tax expense of $6,300.
B)   Net deferred tax benefit of $6,300.
C)   Net deferred tax expense of $14,700.
D)   Net deferred tax benefit of $14,700.E) C) and D)
F) All of the above

Question 3

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

Accepted Answer

A) True 
 B)False

Question 4

Milton Corporation reported pretax book income of $2,500,000. Included in the computation were favorable temporary differences of $400,000, unfavorable temporary differences of $150,000, and favorable permanent differences of $100,000. Compute Milton's deferred income tax expense or benefit.

Accepted Answer

$52,500 deferred income tax ex...

Question 5

Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

Accepted Answer

A)   A publicly traded company should disclose the approximate "tax effect" (dollar amounts)  of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements.
B)   A publicly traded company should disclose the approximate "tax effect" (dollar amounts)  of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements.
C)   A privately held company should disclose the approximate "tax effect" (dollar amounts)  of all of the components of its deferred tax assets and liabilities in a footnote to the financial statements.
D)   A privately held company should disclose the approximate "tax effect" (dollar amounts)  of only those components of its deferred tax assets and liabilities that give rise to a "significant" portion of net deferred tax liabilities and deferred tax assets in a footnote to the financial statements.E) C) and D)
F) A) and B)

Question 6

Temporary differences that are cumulatively "favorable" are referred to as taxable temporary differences.

Accepted Answer

A) True 
 B)False

Question 7

Frost Corporation reported pretax book income of $3,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $350,000, and unfavorable permanent differences of $50,000. Compute Frost's deferred income tax expense or benefit.

Accepted Answer

$31,500 deferred income tax be...

Question 8

ASC 740 requires a publicly traded company to disclose the components of its deferred tax assets and liabilities only if the amounts are considered to be:

Accepted Answer

A)   Material.
B)   Significant.
C)   Pertinent.
D)   Important.E) A) and D)
F) A) and C)

Question 9

ASC 740 deals with accounting for uncertain tax positions.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

B-Line Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $800,000. The favorable book-tax difference of $200,000 was due to a $100,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $50,000 due to accrued vacation pay, and a $150,000 favorable permanent difference from the dividends received deduction.
a. Compute B-Line's current income tax expense.
b. Compute B-Line's deferred income tax expense or benefit.
c. Compute B-Line's effective tax rate.
d. Provide a reconciliation of B-Line's effective tax rate with its hypothetical tax rate of 21 percent.

Accepted Answer

Total income tax provision =...

Question 12

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Accepted Answer

A)   Accelerated tax depreciation in excess of straight-line book depreciation.
B)   Prepayment income reported as income on the tax return prior to being reported as income on the financial income statement.
C)   Gain reported on the income statement prior to being reported on the tax return.
D)   Prepayment deduction reported on the tax return prior to being reported on the income statement.E) B) and D)
F) A) and D)

Question 13

Which of the following statements about uncertain tax position disclosures is false?

Accepted Answer

A)   ASC 740 requires a company to disclose the amount of unrecognized tax benefits for each country in which it files a tax return.
B)   ASC 740 requires a company to disclose the aggregate amount of unrecognized tax benefits, separated between U.S., state and local, and international tax positions.
C)   ASC 740 requires a company to disclose the aggregate amount of unrecognized tax benefits without separation between U.S., state and local, and international tax positions.
D)   None of the choices are correct.E) A) and D)
F) A) and B)

Question 14

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as:

Accepted Answer

A)   Deductible temporary difference.
B)   Taxable temporary difference.
C)   Favorable permanent difference.
D)   Unfavorable permanent difference.E) A) and B)
F) B) and D)

Question 15

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

Accepted Answer

A)   Tax effects of international operations.
B)   Tax effects of state and local operations.
C)   Tax effects from the R&D credit.
D)   Tax effects from goodwill impairment.E) All of the above
F) B) and C)

Question 16

Tax-exempt interest from municipal bonds is an example of a permanent book-tax difference.

Accepted Answer

A) True 
 B)False

Question 17

Marlin Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. Finally, Marlin subtracted a dividends received deduction of $15,000 in computing its current-year taxable income. Marlin's current income tax expense or benefit would be:

Accepted Answer

A)   $236,250 tax expense.
B)   $233,100 tax expense.
C)   $210,000 tax expense.
D)   $205,800 tax expense.E) A) and B)
F) A) and C)

Question 18

MAC, Inc., 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.

Accepted Answer

The deferred tax liability rel...

Question 19

Which of the following statements concerning the classification of deferred tax assets and liabilities is true?

Accepted Answer

A)   A deferred tax asset is classified as noncurrent only if the company expects the future tax benefit to be received more than 12 months from the balance sheet date.
B)   All deferred tax assets and liabilities are treated as noncurrent.
C)   A deferred tax asset related to a bad debt reserve is classified as current if the related accounts receivable is classified as a current asset.
D)   A deferred tax asset related to inventory capitalization is classified as noncurrent only if the company uses a FIFO accounting method and the inventory to which the deferred tax asset relates will not be treated as sold within 12 months from the balance sheet date.E) A) and B)
F) C) and D)

Question 20

Tuna Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. Finally, Tuna subtracted a dividends received deduction of $15,000 in computing its current-year taxable income. Book equivalent of taxable income is:

Accepted Answer

A)   $1,125,000.
B)   $1,110,000.
C)   $1,015,000.
D)   $985,000.E) All of the above
F) C) and D)

Exam 6: Accounting for Income Taxes

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

Correct Answer
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Correct Answer
verified

Milton Corporation reported pretax book income of $2,500,000. Included in the computation were favorable temporary differences of $400,000, unfavorable temporary differences of $150,000, and favorable permanent differences of $100,000. Compute Milton's deferred income tax expense or benefit.

Correct Answer
verified
$52,500 deferred income tax ex...
View Answer

Correct Answer
verified
Total income tax provision =...
View Answer

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Correct Answer
verified

ASC 740 deals with accounting for uncertain tax positions.

Correct Answer
verified

Tax-exempt interest from municipal bonds is an example of a permanent book-tax difference.

Correct Answer
verified

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as:

Correct Answer
verified

Correct Answer
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Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

Correct Answer
verified

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:

Correct Answer
verified

Which of the following statements about uncertain tax position disclosures is false?

Correct Answer
verified

Which of the following statements concerning the classification of deferred tax assets and liabilities is true?

Correct Answer
verified

Frost Corporation reported pretax book income of $3,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $350,000, and unfavorable permanent differences of $50,000. Compute Frost's deferred income tax expense or benefit.

Correct Answer
verified
$31,500 deferred income tax be...
View Answer

ASC 740 requires a publicly traded company to disclose the components of its deferred tax assets and liabilities only if the amounts are considered to be:

Correct Answer
verified

Correct Answer
verified
The deferred tax liability rel...
View Answer

Temporary differences that are cumulatively "favorable" are referred to as taxable temporary differences.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Exam 6: Accounting for Income Taxes

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Milton Corporation reported pretax book income of $2,500,000. Included in the computation were favorable temporary differences of $400,000, unfavorable temporary differences of $150,000, and favorable permanent differences of $100,000. Compute Milton's deferred income tax expense or benefit.

Correct Answerverified$52,500 deferred income tax ex...View AnswerShow Answer

Correct Answerverified Total income tax provision =...View AnswerShow Answer

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

Correct AnswerverifiedShow Answer

ASC 740 deals with accounting for uncertain tax positions.

Correct AnswerverifiedShow Answer

Tax-exempt interest from municipal bonds is an example of a permanent book-tax difference.

Correct AnswerverifiedShow Answer

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements best describes the ASC 740 rules related to the disclosure of the components of deferred tax assets and liabilities in the company's income tax note?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Which of the following statements about uncertain tax position disclosures is false?

Correct AnswerverifiedShow Answer

Which of the following statements concerning the classification of deferred tax assets and liabilities is true?

Correct AnswerverifiedShow Answer

Frost Corporation reported pretax book income of $3,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $350,000, and unfavorable permanent differences of $50,000. Compute Frost's deferred income tax expense or benefit.

Correct Answerverified$31,500 deferred income tax be...View AnswerShow Answer

ASC 740 requires a publicly traded company to disclose the components of its deferred tax assets and liabilities only if the amounts are considered to be:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe deferred tax liability rel...View AnswerShow Answer

Temporary differences that are cumulatively "favorable" are referred to as taxable temporary differences.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
$52,500 deferred income tax ex...
View Answer

Correct Answer
verified
Total income tax provision =...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
$31,500 deferred income tax be...
View Answer

Correct Answer
verified

Correct Answer
verified
The deferred tax liability rel...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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