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Exam 6: Accounting for Income Taxes

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Question 51

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As part of its uncertain tax position assessment,Madison Corporation records interest and penalties related to its unrecognized tax benefits of $1,000,000.Which of the following statements about recording this amount is most correct?

A) Madison must record the expense separate from its income tax provision.
B) Madison can elect to include the expense as part of its income tax provision or record the expense separate from its income tax provision, provided the company discloses which option it chose.
C) Madison must record the expense in its income tax provision.
D) Madison does not record the expense until it is paid.

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

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Question 52

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

A) A valuation allowance is a contra account to deferred tax assets only.
B) A valuation allowance is a contra account to deferred tax liabilities only.
C) A valuation allowance is a contra account to deferred tax assets and liabilities.
D) A valuation allowance is a contra account to noncurrent deferred tax assets only.

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

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Question 53

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Which of the following statements best describes the disclosure of a company's deferred tax assets and liabilities beginning in 2016?

Which of the following taxes would not be accounted for under ASC 740?

A corporation's effective tax rate as computed in its income tax note is the company's cash tax rate for the year.

Packard Corporation reported pretax book income of $500,000.Included in the computation were favorable temporary differences of $10,000,unfavorable temporary differences of $100,000,and unfavorable permanent differences of $90,000.Assuming a tax rate of 34%,the Corporation's current income tax expense or benefit would be:

Farm Corporation reported pretax book loss of $500,000 in 2017.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 had $0 taxable income in 2016 and 2015.Assuming a tax rate of 34%,compute the Company's income tax expense or benefit for 2017.

Gull Corporation reported pretax book income of $2,000,000.Included in the computation were favorable temporary differences of $300,000,unfavorable temporary differences of $200,000,and favorable permanent differences of $50,000.Assuming a tax rate of 34%,compute Gull's current income tax expense or benefit.

Which of the following statements about ASC 740 as it relates to uncertain tax positions is true?

The tax effects of permanent differences are always reported solely in a company's computation of its effective tax rate.

Stone Corporation reported pretax book income of $1,000,000 in 2017.Tax depreciation exceeded book depreciation by $300,000.In addition,the reserve for bad debts decreased by $50,000.Stone had a net deferred tax asset of $29,000 at the beginning of the year,representing a net deductible temporary difference of $100,000.During the year,the company's tax rate increased from 29% to 30%.Compute the Company's current and deferred income tax expense or benefit for 2017.

Jones 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.Book equivalent of taxable income is:

Which of the following statements best describes the objective(s) of ASC 740?

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

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.Using a tax rate of 34%,Smith's deferred income tax expense or benefit would be:

Morgan Corporation determined that $2,000,000 of its domestic production activities deduction on its current year tax return was uncertain,but that it was more likely than not to be sustained on audit.Management made the following assessment of the company's potential tax benefit from the deduction and its probability of occurring. Under ASC 740,what amount of the tax benefit related to the domestic production activities deduction can Morgan recognize in calculating its income tax provision in the current year?

Entities no longer have to classify deferred tax assets and liabilities as current or long-term on the balance sheet.

Grand River Corporation reported pretax book income of $500,000.Included in the computation were favorable temporary differences of $100,000,unfavorable temporary differences of $10,000,and favorable permanent differences of $90,000.Assuming a tax rate of 34%,the Corporation's current income tax expense or benefit would be:

Oriole Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $1,200,000.The unfavorable book-tax difference of $200,000 was due to a $200,000 favorable temporary difference relating to depreciation,an unfavorable temporary difference of $300,000 due to an increase in the reserve for bad debts,and a $100,000 unfavorable permanent difference from the disallowance of compensation expense related to the exercise of incentive stock options.Oriole Company's applicable tax rate is 34%. a.Compute Oriole Company's current income tax expense. b.Compute Oriole Company's deferred income tax expense or benefit. c.Compute Oriole Company's effective tax rate. d.Provide a reconciliation of Oriole Company's effective tax rate with its hypothetical tax rate of 34%.

Which of the following statements is true?