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Exam 17: Accounting for Income Taxes

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Question 31

True/False

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The "current income tax expense or benefit" always represents just the taxes paid orrefunded in the current year.

A) True
B) False

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Question 32

Multiple Choice

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Which of the following statements is true?

A) In determining if a valuation allowance is needed, positive evidence is considered more persuasive than negative evidence.
B) In determining if a valuation allowance is needed, only negative evidence is evaluated.
C) In determining if a valuation allowance is needed, negative and positive evidence must be evaluated equally.
D) In determining if a valuation allowance is needed, negative evidence is considered more persuasive than positive evidence.

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

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Question 33

Multiple Choice

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Which of the following items is not considered evidence in determining if a valuation allowance is necessary?

Green 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 depreciationexceeded book depreciation by $100,000. Finally, Green subtracted a dividends received deduction of $25,000 in computing its current year taxable income. Using a tax rate of34%, Green's cash tax rate is:

A corporation's effective tax rate as computed in its income tax note is the company's cash tax rate for the year.

Grand River Corporation reported pretax book income of $500,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $10,000, and favorable permanent differences of $90,000. Assuming a tax rate of 34%, the Corporation's current income tax expense or benefit would be:

Which of the following statements about ASC 740 as it relates to uncertain tax positions is true?

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 depreciationexceeded book depreciation by $100,000. Finally, Angel subtracted a dividends received deduction of $25,000 in computing its current year taxable income. Using a tax rate of34%, Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

Heron Corporation reported pretax book income of $4,000,000. Included in the computation were favorable temporary differences of $500,000, unfavorable temporary differences of $700,000, and unfavorable permanent differences of $200,000. Using a tax rate of 34%, compute Heron's current income tax expense or benefit.

Which of the following statements best describes the disclosure of a company's deferred tax assets and liabilities beginning in 2016?

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 depreciationexceeded tax depreciation by $100,000. Finally, Marlin subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Using a tax rate of34%, Marlin's current income tax expense or benefit would be:

Which of the following statements is true?

Cardinal Corporation reported pretax book income of $3,000,000. During the current year, the reserve for bad debts increased by $200,000. In addition, book depreciation exceeded taxdepreciation by $100,000. Cardinal sold a fixed asset and reported a book gain of $60,000 and a tax gain of $80,000. Finally, Cardinal deducted $50,000 of domestic production activities deduction on its tax return. Using a tax rate of 34%, compute Cardinal's current income tax expense or benefit.

Gull Corporation reported pretax book income of $2,000,000. Included in the computation were favorable temporary differences of $300,000, unfavorable temporary differences of $200,000, and favorable permanent differences of $50,000. Assuming a tax rate of 34%, compute Gull's current income tax expense or benefit.

Oriole Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $1,200,000. The unfavorable book-tax difference of $200,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of$300,000 due to an increase in the reserve for bad debts, and a $100,000 unfavorable permanentdifference from the disallowance of compensation expense related to the exercise of incentive stock options. Oriole Company's applicable tax rate is 34%.a. Compute Oriole Company's current income tax expense.b. Compute Oriole Company's deferred income tax expense or benefit. c. Compute Oriole Company's effective tax rate.d. Provide a reconciliation of Oriole Company's effective tax rate with its hypothetical tax rate of 34%.

Stone Corporation reported pretax book income of $1,000,000 in 2017. Tax depreciation exceeded book depreciation by $300,000. In addition, the reserve for bad debts decreased by $50,000. Stone had a net deferred tax asset of $29,000 at the beginning of the year, representing a net deductible temporary difference of $100,000. During the year, the company's tax rate increased from 29% to30%. Compute the Company's current and deferred income tax expense or benefit for 2017.

Weber Corporation reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $300,000, and unfavorable permanent differences of $200,000. Compute the Company's book equivalent of taxable income. Use this number to compute the Company's total income tax provision or benefit, assuming a tax rate of 34%.

Knollcrest Corporation has a cumulative book loss over the past 36 months. Which ofthe following statements best describes how this fact enters into the valuation allowance analysis?

Kedzie Company determined that the book basis of its liability for "other post-retirement benefits" (OPEB) exceeded the tax basis of this account by $10,000,000. This basisdifference is characterized as:

TarHeel 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, TarHeel subtracted a dividendsreceived deduction of $25,000 in computing its current year taxable income. Assume a tax rate of 34%. TarHeel's accounting effective tax rate is: