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Exam 16: Income Taxes

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Question 1

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Mostel Company has each of the following items on its balance sheet at December 31,2014: The prepaid expenses have already been deducted for tax purposes.No deductions have yet been take related to the warranty liability or the postretirement liability other than pensions.No evidence exists that the goodwill is impaired.The current and future tax rate is 35 percent. Required: 1.Explain which of the above items requires a deferred tax amount to be recorded,the amount of each,whether each is a deferred tax asset or a deferred tax liability. 2.Determine the amounts of deferred tax asset and deferred tax liability that would be reported on the balance sheet and the current or noncurrent classification of each.

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1.Deferred tax effects are recognized fo...

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Question 2

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In 2014,Ryan Corporation reported $85,000 net income before income taxes.The income tax rate for 2014 was 30 percent.Ryan had an unused $65,000 net operating loss carryforward arising in 2013 when the tax rate was 35 percent.The income tax expense Ryan would report for 2014 would be

A) $7,000.
B) $6,000.
C) $24,600.
D) $32,000.

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

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Question 3

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Rodeo Corporation reported depreciation of $450,000 on its 2014 tax return.However,in its 2014 income statement,Rodeo reported depreciation of $300,000,as well as $30,000 interest revenue on tax-free bonds.The difference in depreciation is only a temporary difference,and it will reverse equally over the next three years.Rodeo's enacted income tax rates are as follows: What amount should be included in the deferred income tax liability in Rodeo's December 31,2014,balance sheet?

Myerson Company reported taxable income of $60,000 for 2014,its first year of operations.This amount reflects temporary differences between financial and taxable income that are scheduled to reverse in subsequent years as shown below.As of December 31,2014,the enacted tax rate for 2014 and future years was 40 percent. Use the provisions of FASB Statement No.109 and assume that it is more likely than not that income will be sufficient in all future years to realize any deductible amounts.Also assume that all the temporary differences relate to noncurrent items. Compute the amount of the deferred tax assets and/or liabilities that would be reported on Myerson's balance sheet as of December 31,2014.

Eva Designs,Inc.,a corporation organized on January 1,2005,reported the following incomes (losses)for the ten-year period,2005-2014: Applying the carryback provisions in the tax law,compute the net amount of taxes paid (amounts paid less refunds)for the ten-year period ending December 31,2014

Garden Company had pretax accounting income of $24,000 during 2014.Garden's only temporary difference for 2011 relates to a sale made in 2012 and recognized for accounting purposes at that time.However,Garden uses the installment sales method of revenue recognition for tax purposes.During 2014 Garden collected a receivable from the 2012 sale which resulted in $6,000 of income under the installment sales method.Garden's taxable income for 2014 would be

An example of a "deductible temporary difference" occurs when

Grisoft Inc.computed a pretax financial income of $40,000 for the first year of its operations ended December 31,2014.Analysis of the tax and book basis of its liabilities disclosed $360,000 in unearned rent revenue on the books that had been recognized as taxable income in 2014 when the cash was received. The unearned rent is expected to be recognized on the books in the following pattern: The enacted tax rates for this year and the next four years are as follows: Use the provisions of FASB Statement No.109. (1)Prepare a schedule showing the reversal of the temporary difference and the computation of income taxes payable and deferred tax assets or liabilities as of December 31,2014. (2)Prepare journal entries to record income taxes payable and deferred income taxes. (3)Prepare the income statement for Grisoft beginning with "Income from continuing operations before income taxes" for the year ended December 31,2014.

A deferred tax liability arising from the use of an accelerated method of depreciation for tax purposes and the straight-line method for financial reporting purposes would be classified on the balance sheet as

In computing the change in deferred tax accounts,which of the following tax rates is used?

Which of the following situations would require interperiod income tax allocation procedures?

The Racing Company had taxable income of $12,000 during 2014.Racing used accelerated depreciation for tax purposes ($3,400) and straight-line depreciation for accounting purposes ($2,000) .Assuming Racing had no other temporary differences,what would the company's pretax accounting income be for 2014?

Which factor would most likely cause a firm to choose the carryforward option for an NOL?

Which of the following represents a permanent difference?

Which of the following creates a permanent difference between financial income and taxable income?

All of the following can result in a temporary difference between pretax financial income and taxable income except

IAS No.12,"Income Taxes," contains the provisions relating to accounting for income taxes.The international standard is similar to U.S.GAAP in that it uses the asset and liability approach for recording deferred income taxes.There are some differences between IASB standards and U.S.GAAP relating to the asset-liability approach,recognition,measurement,disclosure criteria,and implementation,however. Required: Identify and discuss the differences between U.S.GAAP and IAS No.12 and other international standards.

Which of the following creates a temporary difference between financial and taxable income?

Historically,the United Kingdom has recognized only those deferred tax liabilities expected to "crystallize." The term "crystallize" is most nearly synonymous with the term

SFAS No.109 rejected the approach of its predecessor SFAS No.96 regarding the classification of deferred tax assets and liabilities on the balance sheet.SFAS No.96 required that the deferred tax consequences of temporary differences that will result in taxable or deductible amounts during the following year or operating cycle (if longer than one year)be classified as current.SFAS No.109 requires that deferred tax assets and liabilities be classified based on the asset or liability to which the temporary difference relates or,if no clear relationship between the temporary difference and an asset or liability can be established,based on the date on which the deferred tax item will be realized or settled. Required: Explain why the FASB rejected the approach in SFAS No.96 and the basis for the method required in SFAS No.109.