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Exam 6: Accounting for Income Taxes

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Question 41

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

A) The hypothetical tax expense is the tax that would be due if the company's statutory tax rate were 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 were 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 were 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) All of the above
F) B) and C)

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Question 42

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Angel Corporation reported pretax book income of $1,022,000. During the current year, the net reserve for warranties increased by $28,300. In addition, tax depreciation exceeded book depreciation by $105,500. Finally, Angel subtracted a dividends received deduction of $29,400 in computing its current-year taxable income. Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

A) $214,620.
B) $208,677.
C) $198,408.
D) $192,465.

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

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Question 43

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B-Line Company reported pretax net income from continuing operations of $1,001,000 and taxable income of $800,900. The favorable book-tax difference of $200,100 was due to a $100,100 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $50,100 due to accrued vacation pay, and a $150,100 favorable permanent difference from the dividends received deduction. a. Compute B-Line's current income tax expense. b. Compute B-Line's deferred income tax expense or benefit. c. Compute B-Line's effective tax rate. d. Provide a reconciliation of B-Line's effective tax rate with its hypothetical tax rate of 21 percent.

Tax-exempt interest from municipal bonds is an example of a permanent book-tax difference.

Which of the following best describes the focus of ASC 740?

Farm Corporation reported pretax book loss of $500,000. 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.Farm Corporation had taxable income of $750,000 in the prior year. Compute the company's income tax expense or benefit.

Grand River Corporation reported pretax book income of $570,000. Included in the computation were favorable temporary differences of $135,000, unfavorable temporary differences of $66,000, and favorable permanent differences of $122,000. The corporation's current income tax expense or benefit would be:

Whitman Corporation reported pretax book income of $417,000. Book depreciation exceeded tax depreciation by $101,700. In addition, the company accrued vacation pay of $58,500 that was not deductible until paid in the next year. Whitman has a net operating loss carryforward of $201,700 from the prior year. Compute the company's deferred income tax expense or benefit for the current year.

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

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

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.

Price Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $100,000. In addition, the reserve for warranties increased by $40,000. Price had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000. At the beginning of the year, Congress reduced the corporate tax rate from 34 percent to 21 percent. Compute the company's current and deferred income tax expense or benefit.

Temporary differences create either a deferred tax asset or a deferred tax liability.

DeWitt Corporation reported pretax book income of $800,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $100,000 of tax-exempt municipal bond interest. DeWitt used a net operating loss carryover of $200,000 to offset taxable income in the current year. Compute DeWitt's book equivalent of taxable income. Use this number to compute DeWitt's total income tax provision or benefit for the current year.

Irish Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $300,000, unfavorable temporary differences of $100,000, and favorable permanent differences of $200,000. Compute Irish's book equivalent of taxable income. Use this number to compute the company's total income tax provision or benefit.

Stone Corporation reported pretax book income of $1,009,000. Tax depreciation exceeded book depreciation by $300,900. In addition, the reserve for bad debts decreased by $54,500. Stone had a net deferred tax asset of $34,306 at the beginning of the year, representing a net deductible temporary difference of $100,900. At the beginning of the tax year, Congress reduced the corporate tax rate from 34 percent to 21 percent. Compute the company's current and deferred income tax expense or benefit.

TarHeel Corporation reported pretax book income of $1,006,000. During the current year, the net reserve for warranties increased by $100,300. In addition, tax depreciation exceeded book depreciation by $201,500. Finally, TarHeel subtracted a dividends received deduction of $51,200 in computing its current-year taxable income. TarHeel's accounting effective tax rate is:

Which of the following statements is true?

Smith Company reported pretax book income of $411,000. Included in the computation were favorable temporary differences of $52,200, unfavorable temporary differences of $21,100, and favorable permanent differences of $41,100. Smith's deferred income tax expense or benefit would be:

Which of the following statements is true?