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Exam 16: Accounting for Income Taxes

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Question 71

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A magazine publisher collects one year in advance for subscription revenue. In the year of providing the magazines to customers, the company would record:

A) An increase in a deferred tax asset.
B) A decrease in a deferred tax asset.
C) An increase in a deferred tax liability.
D) A decrease in a deferred tax liability.

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Question 72

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When a new tax rate is enacted, what adjustment, if any, is made to the retained earnings account as a result of the change?

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No adjustment is made to retained earnin...

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Question 73

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Which of the following circumstances creates a future taxable amount?

Indicate why LMC lists net operating loss carryforwards as a component of deferred tax assets.

At the end of the preceding year, World Industries had a deferred tax asset of $17,500,000, attributable to its only temporary difference of $50,000,000 for estimated expenses. At the end of the current year, the temporary difference is $45,000,000. At the beginning of the year there was no valuation account for the deferred tax asset. At year-end, World Industries now estimates that it is more likely than not that one-third of the deferred tax asset will never be realized. Taxable income is $12,000,000 for the current year and the tax rate is 30% for all years. Required: Prepare journal entries to record World Industries' income tax expense for the current year. Show well-labeled supporting computations for each component of the journal entries.

Bumble Bee Co. had taxable income of $7,000, MACRS depreciation of $5,000, book depreciation of $2,000, and accrued warranty expense of $400 on the books although no warranty work was performed. What is Bumble Bee's pretax accounting income?

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% for through December 31, 2013, will become 48% for tax years beginning after December 31, 2013. Taxable income for the year 2013 is $30,000,000. Required: Prepare two disclosure notes for Typical's year 2013 financial statements to: (a.) Show the composition of Typical's income tax expense for the year. (b.) Explain the classification and description of the deferred tax liability. Give supporting computations to show how you arrived at the dollar amounts disclosed in your disclosure notes.

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

Ignoring operating expenses, what deferred tax liability would Isaac report in its year-end 2013 balance sheet?

What should Hobson report as net income?

The financial reporting carrying value of Boze Music's only depreciable asset exceeded its tax basis by $150,000 at December 31, 2013. This was a result of differences between straight-line depreciation for financial reporting purposes and MACRS for tax purposes. The asset was acquired earlier in the year. Boze has no other temporary differences. The enacted tax rate is 30% for 2013 and 40% thereafter. Boze should report the deferred tax effect of this difference in its December 31, 2013, balance sheet as:

What should Kent report as the current portion of its income tax expense in the year 2013?

A result of inter-period tax allocation is that:

A temporary difference originates in one period and reverses, or turns around, in one or more later periods.

Changes in enacted tax rates that do not become effective in the current period affect deferred tax accounts only after the new rates take effect.

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

Revenues from installment sales of property reported on financial statements in prior years and currently reported in the tax return create deferred tax assets.

Under current tax law, generally a net operating loss may be carried back:

How should Hobson report tax on the extraordinary item?

For its first year of operations, Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows: Tringali's tax rate is 40%. What should Tringali report as its deferred income tax liability as of the end of its first year of operations?