ACC 302 Unit 2 Exam
- 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?
In its 2014 income statement, Cohen Corp. reported depreciation of $1,850,000 and interest revenue on municipal obligations of $350,000. Cohen reported depreciation of $2,750,000 on its 2014 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next three years. Cohen's enacted income tax rates are 35% for 2014, 30% for 2015, and 25% for 2016 and 2017. What amount should be included in the deferred income tax liability in Hertz's December 31, 2014 balance sheet?
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.
The deferred tax liability to be recognized is
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
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?
Ferguson Company has the following cumulative taxable temporary differences:
The tax rate enacted for 2015 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2015 is $4,800,000 and there are no permanent differences. Ferguson's pretax financial income for 2015 is
Operating income and tax rates for C.J. Company’s 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
A major distinction between temporary and permanent differences is
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
Mathis 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 $ 800,000
Estimated litigation expense 2,000,000
Installment sales (1,600,000)
Taxable income $ 1,200,000
The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 30% for all years.
The deferred tax liability—current to be recognized is
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.?
Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?
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?
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:
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?
Lyons Company deducts insurance expense of $126,000 for tax purposes in 2014, but the expense is not yet recognized for accounting purposes. In 2015, 2016, and 2017, no insurance expense will be deducted for tax purposes, but $42,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $108,000 at the end of 2014. There were no deferred taxes at the beginning of 2014.
What is the amount of the deferred tax liability at the end of 2014?
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
Larsen Corporation reported $100,000 in revenues in its 2014 financial statements, of which $33,000 will not be included in the tax return until 2015. The enacted tax rate is 40% for 2014 and 35% for 2015. What amount should Larsen report for deferred income tax liability in its balance sheet at December 31, 2014?
Dunn, Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Installment income of $1,800,000 will be collected in the following years when the enacted tax rates are:
Collection of Income Enacted Tax Rates
2014 $180,000 35%
2015 360,000 30%
2016 540,000 30%
2017 720,000 25%
The installment income is Dunn's only temporary difference. What amount should be included in the deferred income tax liability in Dunn's December 31, 2015 balance sheet?
Rodd Co. reports a taxable and pretax financial loss of $800,000 for 2015. Rodd's taxable and pretax financial income and tax rates for the last two years were:
2013 $800,000 30%
2014 800,000 35%
The amount that Rodd should report as an income tax refund receivable in 2015, assuming that it uses the carryback provisions and that the tax rate is 40% in 2015, is
Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if
Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?
The deferred tax expense is the
Stuart Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Stuart would be
Deferred taxes should be presented on the balance sheet
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.)