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Exam 16: Accounting for Income Taxes

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Question 31

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Which of the following creates a deferred tax asset?

A) An unrealized loss from recording investments at fair value.
B) Prepaid expenses.
C) An unrealized gain from recording investments at fair value.
D) Accelerated depreciation in the tax return.

E) All of the above
F) None of the above

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Question 32

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Franklin's balance sheet at the end of its first year would report:

A) A deferred tax liability of $16 among noncurrent liabilities.
B) A deferred tax liability of $16 among current liabilities.
C) A deferred tax asset of $16 among noncurrent assets.
D) A deferred tax asset of $16 among current assets.The deferred tax liability of $16 ($40 40%) would be reported under noncurrent liabilities because the future taxable amount is related to depreciable assets, which are classified as noncurrent.

E) All of the above
F) A) and D)

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Question 33

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Puritan Corp. reported the following pretax accounting income and taxable income for its first three years of operations: Puritan's tax rate is 40% for all years. As of December 31, 2009, Puritan was certain that it would recover the full tax benefit of the NOL that remained after the operating loss carryback. What would Puritan report as net income for 2010?

The Kelso Company had the following operating results: What is the income tax refund receivable?

North Dakota Corporation began operations in January 2008, and purchased a machine for $20,000. North Dakota uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2008, 30% in 2009, and 20% in 2010. Pretax accounting income for 2008 was $150,000, which includes interest revenue of $20,000 from municipal bonds. The enacted tax rate is 30% for all years. There are no other differences between accounting and taxable income. Required: Prepare a journal entry to record income taxes for the year 2008. Show well-labeled computations for the amount of income tax payable and the change in the deferred tax account.

EZ, Inc., reports pretax accounting income of $400,000, but due to a single temporary difference, taxable income is $500,000. At the beginning of the year, no temporary differences existed. EZ is subject to a tax rate of 40%. Required: Prepare the appropriate journal entry to record EZ's income taxes. Show well-labeled computations.

Puritan Corp. reported the following pretax accounting income and taxable income for its first three years of operations: Puritan's tax rate is 40% for all years. Puritan elected a loss carryback. Puritan was certain it would recover the full tax benefit of the NOL. What did it report on December 31, 2009, as the deferred tax asset for the NOL carryforward?

Four independent situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by temporary differences reported first on: Required: For each situation, determine the taxable income assuming pretax accounting income is $100,000. Show well-labeled computations.

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

Of the following temporary differences, which one ordinarily creates a deferred tax asset?

Under SFAS 109 when a company has a net operating loss carryforward:

What disclosures for deferred taxes, pertaining to the income statement, are required by SFAS 109?

Reliable Corp. had a pretax accounting income of $30 million this year. This included the collection of $40 million of life insurance proceeds when several key executives died in a plane crash. Temporary differences for the current year netted out to zero. Reliable has had a 40% tax rate and taxable income of $120 million over the previous two years and plans to elect an operating loss carryback for any NOL. In the current year financial statements, Reliable would report:

At December 31, 2009, Moonlight Bay Resorts had the following deferred income tax items: Deferred tax asset of $54 million related to a current liability Deferred tax asset of $36 million related to a noncurrent liability Deferred tax liability of $120 million related to a noncurrent asset Deferred tax liability of $72 million related to a current asset Moonlight Bay should report in the current section of its December 31, 2009, balance sheet a:

In 2009, Magic Table Inc. decides to add a 36-month warranty on its new product sales. Warranty costs are tax deductible when claims are settled. In its financial statements for 2009, Magic Table Inc incurs:

Several years ago, Western Electric Corp. purchased equipment for $20,000,000. Western uses straight-line depreciation for financial reporting and MACRS for tax purposes. At December 31, 2008, the carrying value of the equipment was $18,000,000 and its tax basis was $15,000,000. At December 31, 2009, the carrying value of the equipment was $16,000,000 and the tax basis was $11,000,000. There were no other temporary differences and no permanent differences. Pretax accounting income for the current year was $25,000,000. A tax rate of 35% applies to all years. Required: Prepare one journal entry to record Western's income tax expense for the current year. Show well-labeled computations for the income tax payable and the change in the deferred tax account.

How are deferred tax assets arising from net operating loss carryforwards classified under SFAS 109?

For classification purposes, a valuation allowance:

Why are the depreciation and patent amortization listed as deferred tax liabilities?

A net operating loss (NOL) carryforward cannot result in the balance sheet at the end of the NOL year showing: