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Exam 6: Accounting for Income Taxes

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Question 41

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Lynch Company had a net deferred tax asset of $69,292 at the beginning of the year, representing a net taxable deductible difference of $203,800 (taxed at 34 percent) . During the year, Lynch reported pretax book income of $815,200. Included in the computation were favorable temporary differences of $23,800 and unfavorable temporary differences of $51,900.At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Lynch's deferred income tax expense or benefit for the current year would be:

A) Net deferred tax benefit of $5,901.
B) Net deferred tax expense of $5,901.
C) Net deferred tax benefit of $32,395.
D) Net deferred tax expense of $20,593.

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

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Question 42

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Marlin Corporation reported pretax book income of $1,016,000. During the current year, the net reserve for warranties increased by $28,200. In addition, book depreciation exceeded tax depreciation by $101,600. Finally, Marlin subtracted a dividends received deduction of $16,600 in computing its current-year taxable income. Marlin's current income tax expense or benefit would be:

A) $240,618 tax expense.
B) $237,132 tax expense.
C) $213,360 tax expense.
D) $208,656 tax expense.

E) B) and C)
F) A) and B)

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Question 43

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What confidence level must management have that a tax position will be sustained on audit before it can recognize any portion of the related deferred tax asset under ASC 740?

Which of the following statements is true?

Publicly traded companies usually file their financial statements before they file their federal income tax returns.

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

Weaver Company had a net deferred tax liability of $34,476 at the beginning of the year, representing a net taxable temporary difference of $101,400 (taxed at 34 percent) . During the year, Weaver reported pretax book income of $405,600. Included in the computation were unfavorable temporary differences of $51,400 and favorable temporary differences of $22,800. At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Weaver's deferred income tax expense or benefit for the current year would be:

Suppose that on December 22, 2019 Congress increased the corporate tax rate from 21 percent to 25 percent effective in 2020. The tax rate change will affect only deferred tax assets and liabilities that arise in 2020 and thereafter.

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:

Heron Corporation reported pretax book income of $4,000,000. Included in the computation were favorable temporary differences of $500,000, unfavorable temporary differences of $700,000, and unfavorable permanent differences of $200,000. Compute Heron's current income tax expense or benefit.

Packard Corporation reported pretax book income of $500,300. Included in the computation were favorable temporary differences of $10,300, unfavorable temporary differences of $100,300, and unfavorable permanent differences of $80,150. The corporation's current income tax expense or benefit would be:

Yellow Rose Corporation reported pretax book income of $100,000,000. Tax depreciation exceeded book depreciation by $100,000. During the year Yellow Rose capitalized $50,000 into ending inventory under §263A. Capitalized inventory costs of $75,000 in beginning inventory were deducted as part of cost of goods sold on the tax return. Compute Yellow Rose's taxes payable or refundable.

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 $80,000. The corporation's current income tax expense or benefit would be:

In general, a temporary difference reflects a difference in the financial accounting basis and tax basis of an asset or liability on the balance sheet.

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.

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?

MAC, Incorporated, completed its first year of operations with a pretax loss of $300,000. The tax return showed a net operating loss of $500,000. The $200,000 book-tax difference results from excess tax depreciation over book depreciation. 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.

Morgan Corporation determined that $2,000,000 of the research credit 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 credit and its probability of occurring. Under ASC 740, what amount of the tax benefit related to theresearch credit can Morgan recognize in calculating its income tax provision in the current year?

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

Robinson Company had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000 (taxed at 34 percent) . During the year, Robinson reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000 and unfavorable temporary differences of $20,000. During the year, Congress reduced the corporate tax rate to 21 percent. Robinson's deferred income tax expense or benefit for the current year would be: