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Exam 6: Accounting for Income Taxes

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Question 21

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Once determined, an unrecognized tax benefit under ASC 740 is not readjusted for subsequent events.

A) True
B) False

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Question 22

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Kedzie Company determined that the book basis of its liability for "other postretirement benefits" (OPEB) exceeded the tax basis of this account by $10,000,000. This basis difference is characterized as:

A) Deductible temporary difference.
B) Taxable temporary difference.
C) Favorable permanent difference.
D) Unfavorable permanent difference.

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

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Question 23

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Purple Rose Corporation reported pretax book income of $500,000. Tax depreciation exceeded book depreciation by $300,000. In addition, the company received $250,000 of tax-exempt life insurance proceeds. The prior-year tax return showed taxable income of $100,000. Compute Purple Rose's current income tax expense or benefit.

Stone Corporation reported pretax book income of $1,000,000. 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 $34,000 at the beginning of the year, representing a net deductible temporary difference of $100,000. At the beginning of the tax year, Congress reduced the corporate tax rate from 34 percent to 21 percent. Compute the company's current and deferred income tax expense or benefit.

Angel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Angel subtracted a dividends received deduction of $25,000 in computing its current-year taxable income. Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

Tuna Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. Finally, Tuna subtracted a dividends received deduction of $15,000 in computing its current-year taxable income. Book equivalent of taxable income is:

The "current income tax expense or benefit" always represents just the taxes paid or refunded in the current year.

Weber Corporation reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $300,000, and unfavorable permanent differences of $200,000. Compute the company's book equivalent of taxable income. Use this number to compute the company's total income tax provision or benefit.

Cardinal Corporation reported pretax book income of $3,000,000. During the current year, the reserve for bad debts increased by $200,000. In addition, book depreciation exceeded tax depreciation by $100,000. Cardinal sold a fixed asset and reported a book gain of $60,000 and a tax gain of $80,000. Finally, Cardinal deducted $50,000 of domestic production activities deduction on its tax return. Compute Cardinal's current income tax expense or benefit.

Marlin Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. Finally, Marlin subtracted a dividends received deduction of $15,000 in computing its current-year taxable income. Marlin's current income tax expense or benefit would be:

Costello 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, Costello received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Costello's deferred income tax expense or benefit would be:

Angel Corporation reported pretax book income of $1,022,000. During the current year, the net reserve for warranties increased by $28,300. In addition, tax depreciation exceeded book depreciation by $105,500. Finally, Angel subtracted a dividends received deduction of $29,400 in computing its current-year taxable income. Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

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

Grand River Corporation reported pretax book income of $570,000. Included in the computation were favorable temporary differences of $135,000, unfavorable temporary differences of $66,000, and favorable permanent differences of $122,000. The corporation's current income tax expense or benefit would be:

Green Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $50,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Green subtracted a dividends received deduction of $25,000 in computing its current-year taxable income. Green's cash tax rate is:

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

Costello Corporation reported pretax book income of $500,600. During the current year, the reserve for bad debts increased by $6,200. In addition, tax depreciation exceeded book depreciation by $40,600. Finally, Costello received $3,300 of tax-exempt life insurance proceeds from the death of one of its officers. Costello's deferred income tax expense or benefit would be:

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

Entities classify all deferred tax assets and liabilities as noncurrent on the balance sheet.

Which of the following statements is true with respect to a company's effective tax rate reconciliation?