Rowen, Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions:
Received rent from Jane, Co. for 2016 $64,000
Municipal bond income $80,000
Depreciation for tax purposes in excess of book depreciation $40,000
Installment sales revenue to be collected in 2016 $108,000
At the end of 2015, which of the following deferred tax accounts and balances is reported on Rowen, Inc.- balance sheet?
Account _ Balance
Question 2. Question : Munoz Corp.'s books showed pretax financial income of $2,700,000 for the year ended December 31, 2015. In the computation of federal income taxes, the following data were considered:
Gain on an involuntary conversion $1,170,000
(Munoz has elected to replace the property within the statutory
period using total proceeds.)
Depreciation deducted for tax purposes in excess of depreciation
deducted for book purposes 180,000
Federal estimated tax payments, 2015 225,000
Enacted federal tax rate, 2015 30%
What amount should Munoz report as its current federal income tax liability on its December 31, 2015 balance sheet?
$180,000
$234,000
$405,000
$459,000
Points Received: 2 of 2
Comments:
Question 3. Question : Horner Corporation has a deferred tax asset at December 31, 2015 of $160,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted tax rates are as follows: 40% for 2012-2014; 35% for 2015; and 30% for 2016 and thereafter. Assuming that management expects that only 50% of the related benefits will actually be realized, a valuation account should be established in the amount of:
$80,000
$32,000
$28,000
$24,000
Points Received: 2 of 2
Comments:
Question 4. Question : The following information is available for Kessler Company after its first year of operations:
Income before taxes $250,000
Federal income tax payable $104,000
Deferred income tax (4,000)
Income tax expense 100,000
Net income $150,000
Kessler estimates its annual warranty expense as a percentage of sales. The amount charged to warranty expense on its books was $85,000. Assuming a 40% income tax rate, what amount was actually paid this year for warranty claims?
$95,000
$100,000
$85,000
$75,000
Question 5. Question : Rowen, Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions:
Received rent from Jane, Co. for 2016 $64,000
Municipal bond income $80,000
Depreciation for tax purposes in excess of book depreciation $40,000
Installment sales revenue to be collected in 2016 $108,000
For 2015, what is the amount of income taxes payable for Rowen, Inc.?
$603,200
$654,400
$686,400
$772,800
Question 6. Question : Foltz Corp.'s 2014 income statement had pretax financial income of $250,000 in its first year of operations. Foltz uses an accelerated cost recovery method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions for depreciation over the five-year life of the assets acquired in 2014, and the enacted tax rates for 2014 to 2018 are as follows:
Book Over (Under) Tax Tax Rates
2014 $(50,000) 35%
2015 (65,000) 30%
2016 (15,000) 30%
2017 60,000 30%
2018 70,000 30%
There are no other temporary differences. In Foltz's December 31, 2014 balance sheet, the noncurrent deferred income tax liability and the income taxes currently payable should be
Noncurrent Deferred Income Taxes
Income Tax Liability Currently Payable
$39,000 $50,000
$39,000 $70,000
$15,000 $60,000
$15,000 $70,000
P
Question 7. Question : Tanner, Inc. incurred a financial and taxable loss for 2015. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2015 financial statements?
The reduction of the loss should be reported as a prior period adjustment.
The refund claimed should be reported as a deferred charge and amortized over five years.
The refund claimed should be reported as revenue in the current year.
The refund claimed should be shown as a reduction of the loss in 2015.
Points Received: 2 of 2
Comments:
Question 8. Question : Mitchell Corporation prepared the following reconciliation for its first year of operations:
Pretax financial income for 2015 $ 900,000
Tax exempt interest (75,000)
Originating temporary difference (175,000)
Taxable income $650,000
The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2015 is 35%.
What amount should be reported in its 2015 income statement as the deferred portion of income tax expense?
$70,000 debit
$87,500 debit
$70,000 credit
$87,500 credit
Points Received: 2 of 2
Comments:
Question 9. Question : Lehman Corporation purchased a machine on January 2, 2013, for $3,000,000. The machine has an estimated 5-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and the following MACRS amounts will be deducted for tax purposes:
2013 $600,000 2016 $345,000
2014 960,000 2017 345,000
2015 576,000 2018 174,000
Assuming an income tax rate of 30% for all years, the net deferred tax liability that should be reflected on Lehman's balance sheet at December 31, 2014 be
Deferred Tax Liability
Current Noncurrent
$0 $108,000
$7,200 $100,800
$100,800 $7,200
$108,000 $0
Points Received: 2 of 2
Comments:
Question 10. Question : A major distinction between temporary and permanent differences is
permanent differences are not representative of acceptable accounting practice.
temporary differences occur frequently, whereas permanent differences occur only once.
once an item is determined to be a temporary difference, it maintains that status; however, a permanent difference can change in status with the passage of time.
temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.
Question 11. Question : In 2014, Krause Company accrued, for financial statement reporting, estimated losses on disposal of unused plant facilities of $2,400,000. The facilities were sold in March 2015 and a $2,400,000 loss was recognized for tax purposes. Also in 2014, Krause paid $100,000 in premiums for a two-year life insurance policy in which the company was the beneficiary. Assuming that the enacted tax rate is 30% in both 2014 and 2015, and that Krause paid $780,000 in income taxes in 2014, the amount reported as net deferred income taxes on Krause's balance sheet at December 31, 2014, should be a
$680,000 asset.
$360,000 asset.
$360,000 liability.
$720,000 asset.
Question 12. Question : At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a deferred tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and the enacted tax rate is 40%. The following items are included in Elephant- pre-tax income:
Interest income from municipal bonds $ 60,000
Accrued warranty costs, estimated to be
paid in 2016 $130,000
Operating loss carryforward $ 95,000
Installment sales revenue, will be collected
in 2016 $ 65,000
Prepaid rent expense, will be used in 2016 $ 30,000
Which of the following is required to adjust Elephant, Inc.- deferred tax asset to its correct balance at December 31, 2015?
A credit of $52,000
A credit of $38,000
A debit of $38,000
A debit of $42,000
Question 13. Question : Eckert Corporation's partial income statement after its first year of operations is as follows:
Income before income taxes $3,750,000
Income tax expense
Current $1,035,000
Deferred 90,000 1,125,000
Net income $2,625,000
Eckert uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $2,400,000. No other differences existed between book income and taxable income except for the amount of depreciation. Assuming a 30% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year?
$2,100,000
$1,125,000
$2,400,000
$2,700,000
Question 14. Question : Recognizing a valuation allowance for a deferred tax asset requires that a company
consider all positive and negative information in determining the need for a valuation allowance.
consider only the positive information in determining the need for a valuation allowance.
take an aggressive approach in its tax planning.
pass a recognition threshold, after assuming that it will be audited by taxing authorities.
Question 15. Question : On January 1, 2015, Gore, Inc. purchased a machine for $1,350,000 which will be depreciated $135,000 per year for financial statement reporting purposes. For income tax reporting, Gore elected to expense $150,000 and to use straight-line depreciation which will allow a cost recovery deduction of $120,000 for 2015. Assume a present and future enacted income tax rate of 30%. What amount should be added to Gore's deferred income tax liability for this temporary difference at December 31, 2015?
$81,000
$45,000
$40,500
$36,000
Question 16. Question : The deferred tax expense is the
increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.
increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.
increase in balance of deferred tax asset plus the increase in balance of deferred tax liability.
decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.
Question 17. Question : At the December 31, 2014 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2015, a future taxable amount will occur and
pretax financial income will exceed taxable income in 2015.
Unruh will record a decrease in a deferred tax liability in 2015.
total income tax expense for 2015 will exceed current tax expense for 2015.
Unruh will record an increase in a deferred tax asset in 2015.
Question 18. Question : Ewing Company sells household furniture. Customers who purchase furniture on the installment basis make payments in equal monthly installments over a two-year period, with no down payment required. Ewing's gross profit on installment sales equals 40% of the selling price of the furniture.
For financial accounting purposes, sales revenue is recognized at the time the sale is made. For income tax purposes, however, the installment method is used. There are no other book and income tax accounting differences, and Ewing's income tax rate is 30%.
If Ewing's December 31, 2015, balance sheet includes a deferred tax liability of $600,000 arising from the difference between book and tax treatment of the installment sales, it should also include installment accounts receivable of
$5,000,000.
$2,000,000.
$1,500,000.
$450,000.
Question 19. Question : Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
Pretax financial income $1,500,000
Estimated litigation expense 2,000,000
Extra depreciation for taxes (3,000,000)
Taxable income $ 500,000
The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each of the next three years. The income tax rate is 30% for all years.
Income taxes payable is
$0.
$150,000.
$300,000.
$450,000.
Question 20. Question : Deferred taxes should be presented on the balance sheet
as one net debit or credit amount.
in two amounts: one for the net current amount and one for the net noncurrent amount.
in two amounts: one for the net debit amount and one for the net credit amount.
as reductions of the related asset or liability accounts.
Question 21. Question : Wilcox Corporation reported the following results for its first three years of operation:
2014 income (before income taxes) $ 200,000
2015 loss (before income taxes) (1,800,000)
2016 income (before income taxes) 2,000,000
There were no permanent or temporary differences during these three years. Assume a corporate tax rate of 30% for 2014 and 2015, and 40% for 2016.
Assuming that Wilcox elects to use the carryback provision, what income (loss) is reported in 2015? (Assume that any deferred tax asset recognized is more likely than not to be realized.)
$(1,800,000)
$ -0-
$(1,740,000)
$(1,100,000)
Question 22. Question : At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a deferred tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and the enacted tax rate is 40%. The following items are included in Elephant- pre-tax income:
Interest income from municipal bonds $ 60,000
Accrued warranty costs, estimated to be
paid in 2016 $130,000
Operating loss carryforward $ 95,000
Installment sales revenue, will be collected
in 2016 $ 65,000
Prepaid rent expense, will be used in 2016 $ 30,000
What is Elephant, Inc.- taxable income for 2015?
$ 750,000
$ 630,000
$ 870,000
$1,130,000
Question 23. Question : Operating income and tax rates for C.J. Company- first three years of operations were as follows:
Income _ Enacted tax rate
2014 $300,000 35%
2015 ($750,000) 30%
2016 $1,260,000 40%
Assuming that C.J. Company opts only to carryforward its 2015 NOL, what is the amount of deferred tax asset or liability that C.J. Company would report on its December 31, 2015 balance sheet?
Amount _ Deferred tax asset or liability
$225,000 Deferred tax liability
$262,500 Deferred tax liability
$300,000 Deferred tax asset
$225,000 Deferred tax asset
Question 24. Question : A reconciliation of Gentry Company's pretax accounting income with its taxable income for 2014, its first year of operations, is as follows:
Pretax accounting income $3,000,000
Excess tax depreciation (150,000)
Taxable income $2,850,000
The excess tax depreciation will result in equal net taxable amounts in each of the next three years. Enacted tax rates are 40% in 2014, 35% in 2015 and 2016, and 30% in 2017. The total deferred tax liability to be reported on Gentry's balance sheet at December 31, 2014, is
$60,000.
$50,000.
$52,500.
$45,000.
Points Received: 2 of 2
C
Question 25. Question : Wilcox Corporation reported the following results for its first three years of operation:
2014 income (before income taxes) $ 200,000
2015 loss (before income taxes) (1,800,000)
2016 income (before income taxes) 2,000,000
There were no permanent or temporary differences during these three years. Assume a corporate tax rate of 30% for 2014 and 2015, and 40% for 2016.
Assuming that Wilcox elects to use the carryforward provision and not the carryback provision, what income (loss) is reported in 2015?
$(1,800,000)
$(1,080,000)
$ -0-
$(1,740,000)
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