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Exam 6: Accounting for Income Taxes

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Question 51

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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 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 D)
F) A) and C)

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Question 52

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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:

A) $105,000.
B) $104,370.
C) $97,650.
D) $97,020.

E) B) and C)
F) None of the above

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Question 53

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ASC 740 deals with accounting for uncertain tax positions.

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

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

The focus of ASC 740 is the income statement.

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. 

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.

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

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

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

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

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.

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:

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

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

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:

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. 

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

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