Question 1

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 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 D)
F) All of the above

Question 2

Which of the following items does not result in a permanent difference?

Accepted Answer

A)   Accelerated tax depreciation in excess of straight-line book depreciation.
B)   Interest income from a tax-exempt municipal bond.
C)   Dividend received deduction on the income tax return.
D)   Excess tax benefits from the exercise of an NQO.E) C) and D)
F) None of the above

Question 3

Lafayette, Inc. completed its first year of operations with a pretax loss of $800,000. The tax return showed a net operating loss of $750,000. The $50,000 book-tax difference results from a disallowed deduction for business-related meals. 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 disallowed business-relate...

Question 4

Which of the following statements best describes a valuation allowance as it relates to accounting for income taxes?

Accepted Answer

A)   A valuation allowance is a contra account to deferred tax assets only.
B)   A valuation allowance is a contra account to deferred tax liabilities only.
C)   A valuation allowance is a contra account to deferred tax assets and liabilities.
D)   A valuation allowance is a contra account to noncurrent deferred tax assets only.E) None of the above
F) C) and D)

Question 5

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) All of the above
F) A) and B)

Question 6

Abbot Corporation reported pretax book income of $500,000. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, Abbot received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Abbot's current income tax expense or benefit would be:

Accepted Answer

A)   $105,000.
B)   $104,370.
C)   $97,650.
D)   $97,020.E) A) and B)
F) All of the above

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

Identify the following items as creating a temporary difference, permanent difference, or no difference.

Accepted Answer

The answer of Identify the following items as creating a...

Question 10

A company's effective tax rate can best be described as:

Accepted Answer

A)   The company's cash taxes paid divided by taxable income.
B)   The company's cash taxes paid divided by net income from continuing operations.
C)   The company's financial statement income tax provision divided by taxable income.
D)   The company's financial statement income tax provision divided by net income from continuing operations.E) C) and D)
F) B) and D)

Question 11

Which of the following statements best describes "book equivalent of taxable income" (BETI) ?

Accepted Answer

A)   BETI is book income adjusted for all permanent and temporary differences.
B)   BETI is book income adjusted for all temporary differences.
C)   BETI is book income adjusted for all permanent differences.
D)   BETI is book income before adjustment for all permanent and temporary differences.E) None of the above
F) A) and B)

Question 12

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 13

Farm Corporation reported pretax book loss of $500,000 in 2018. Tax depreciation exceeded book depreciation by $100,000. In addition, Farm received prepaid income of $50,000, which was included on its tax return but was not included in the book loss. Compute the company's income tax expense or benefit for 2018.

Accepted Answer

$105,000 net tax benefit. The components...

Question 14

The focus of ASC 740 is the income statement.

Accepted Answer

A) True 
 B)False

Question 15

ASC 740 deals with accounting for uncertain tax positions.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)   A cumulative book loss over some period of time.
B)   Management projects future taxable income based on a backlog of signed contracts.
C)   A net operating loss expired unused in the current year.
D)   Management can implement a tax strategy to create future taxable income, but it will be detrimental to the future profitability of the company.E) B) and D)
F) B) and C)

Question 17

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following book-tax basis differences results in a deductible temporary difference?

Accepted Answer

A)   Book basis of an employee post-retirement benefits liability exceeds its tax basis.
B)   Book basis of a building exceeds the tax basis of the building.
C)   Book basis of an acquired intangible exceeds the tax basis of the intangible.
D)   Tax basis of a prepaid liability exceeds the book basis of the liability.E) B) and D)
F) A) and D)

Question 19

ASC 740 applies to accounting for state and local and international income taxes as well as federal income taxes.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is True with respect to a company's effective tax rate reconciliation?

Accepted Answer

A)   The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's net income from continuing operations.
B)   The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's taxable income.
C)   The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's book equivalent of taxable income.
D)   The hypothetical tax expense is another name for the company's effective tax rate.E) B) and C)
F) All of the above

Exam 6: Accounting for Income Taxes

Correct Answer
verified
The disallowed business-relate...
View Answer

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.

Correct Answer
verified

ASC 740 applies to accounting for state and local and international income taxes as well as federal income taxes.

Correct Answer
verified

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

Correct Answer
verified

Which of the following book-tax basis differences results in a deductible temporary difference?

Correct Answer
verified

Correct Answer
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The focus of ASC 740 is the income statement.

Correct Answer
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Which of the following statements best describes "book equivalent of taxable income" (BETI) ?

Correct Answer
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ASC 740 deals with accounting for uncertain tax positions.

Correct Answer
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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
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Identify the following items as creating a temporary difference, permanent difference, or no difference.

Correct Answer
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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

Correct Answer
verified
$105,000 net tax benefit. The components...
View Answer

A company's effective tax rate can best be described as:

Correct Answer
verified

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 basis difference is characterized as:

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

Correct Answer
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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

Which of the following items does not result in a permanent difference?

Correct Answer
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Which of the following statements best describes a valuation allowance as it relates to accounting for income taxes?

Correct Answer
verified

Which of the following statements is True with respect to a company's effective tax rate reconciliation?

Correct Answer
verified

Exam 6: Accounting for Income Taxes

Correct AnswerverifiedThe disallowed business-relate...View AnswerShow Answer

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.

Correct AnswerverifiedShow Answer

ASC 740 applies to accounting for state and local and international income taxes as well as federal income taxes.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following book-tax basis differences results in a deductible temporary difference?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The focus of ASC 740 is the income statement.

Correct AnswerverifiedShow Answer

Which of the following statements best describes "book equivalent of taxable income" (BETI) ?

Correct AnswerverifiedShow Answer

ASC 740 deals with accounting for uncertain tax positions.

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

Identify the following items as creating a temporary difference, permanent difference, or no difference.

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

Correct Answerverified$105,000 net tax benefit. The components...View AnswerShow Answer

A company's effective tax rate can best be described as:

Correct AnswerverifiedShow Answer

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 basis difference is characterized as:

Correct AnswerverifiedShow Answer

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

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

Which of the following items does not result in a permanent difference?

Correct AnswerverifiedShow Answer

Which of the following statements best describes a valuation allowance as it relates to accounting for income taxes?

Correct AnswerverifiedShow Answer

Which of the following statements is True with respect to a company's effective tax rate reconciliation?

Correct AnswerverifiedShow Answer

Correct Answer
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The disallowed business-relate...
View Answer

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

Correct Answer
verified
$105,000 net tax benefit. The components...
View Answer

Correct Answer
verified

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

Correct Answer
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Correct Answer
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Correct Answer
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