FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 3: Taxes on the Financial Statements

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements best describes considerations regarding a company's tax expense that may be made by users of GAAP financial statements?

A) The breakdown of tax expense between current and deferred may provide useful information regarding the comparison of tax burdens between companies.
B) An analysis of earnings before interest, taxes, depreciation, and amortization EBITDA) is often a better approach to comparing operating results of two companies.
C) One-time effects within a company's effective tax rate should be removed before comparing effective tax rates across companies or across years for the same company) .
D) All the above observations are correct.

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

Correct Answer

verified

Show Answer

Question 32

True/False

Review LaterAdd Note

Review Later

Schedule UTP of the Form 1120 reconciles financial statement net income after tax with a large corporation's taxable income.

A) True
B) False

Correct Answer

verified

Show Answer

Question 33

True/False

Review LaterAdd Note

A CFO probably prefers a tax planning strategy that produces a temporary book-tax savings difference to one that produces a permanent difference.

South, Inc., earns book net income before tax of $400,000 in year 1.South acquires a depreciable asset in year 1, and first year tax depreciation exceeds book depreciation by $50,000.At the end of year 1, South's deferred tax liability account balance is $17,500.In year 2, South earns $500,000 book net income before tax, and its book depreciation exceeds tax depreciation by $20,000.South records no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 21%, what is South's total provision for income tax expense reported on its GAAP financial statements for year 2?

"Permanent differences" include items that appear in the Federal income tax return as income or deduction, and in the GAAP financial statements as revenue or expense, but in different reporting periods.

JiangCo constructs the following table in determining how to apply ASC 740-10 to its filing position for a transfer pricing issue.Its book tax provision for the year, including $3 million for the uncertain transfer pricing issue, is $10 million. Under ASC 740-10, JiangCo's book income tax expense for this item is:

The operations of 80% or more owned domestic subsidiaries can be included in the parent corporation's consolidated tax return, if a proper election is made.

The income tax footnote to the GAAP financial statements includes a reconciliation of a corporation's hypothetical tax on book income to its book tax expense as if it were taxed in full at the applicable U.S.income tax rates.

Budlow, Inc., reported the following results for the current year. Determine Budlow's taxable income for the current year.Identify any temporary or permanent book-tax differences.

Phyllis, Inc., earns book net income before tax of $600,000.Phyllis puts into service a depreciable asset this year, and first year tax depreciation exceeds book depreciation by $120,000.Phyllis has recorded no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 21%, what is Phyllis's total income tax expense reported on its GAAP financial statements?

Cold, Inc., reported a $100,000 total tax expense for financial statement purposes in year 1.This total expense consisted of $150,000 in current tax expense and a deferred tax benefit of $50,000.The deferred tax benefit consisted of $90,000 in deferred tax assets reduced by a valuation allowance of $40,000.In year 2, Cold reports $600,000 in book net income before tax.Cold records no other permanent or temporary book-tax differences.At the end of year 2, Cold's auditors determine that the existing valuation allowance of $40,000 should be reduced to zero.What is Cold's total tax expense for year 2?

In the typical case, the taxpayer would prefer to see an) :

Yahr, Inc., is a domestic corporation with no subsidiaries.It operates in almost every U.S.state.Yahr records no permanent or temporary book-tax differences this year.Yahr's tax expense on its GAAP financial statements and its tax liability reported on its Federal income tax return are identical.

Purple, Inc., a domestic corporation, owns 100% of Blue, Ltd., a foreign corporation and Yellow, Inc., a domestic corporation.Purple also owns 40% of Green, Inc., a domestic corporation.Purple receives no distributions from any of these corporations.Which of these entities' net income are included in Purple's GAAP income statement for current year financial reporting purposes?

Never, Inc., earns book net income before tax of $500,000.In computing its book income, Never deducts $50,000 more in warranty expense for book purposes than is allowed for tax purposes.Never records no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 21% and no valuation allowance is required, what is Never's deferred income tax asset reported on its GAAP financial statements?

Black, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year.Assume a 21% corporate tax rate and no valuation allowance. Black, Inc.'s, gross deferred tax assets and liabilities at the beginning of Black's year are listed below. Black, Inc.'s, book income before tax is $6,000.Black records two permanent book-tax differences. It earned $250 in tax-exempt municipal bond interest, and it incurred $500 in nondeductible business meals expense.Determine the change in Black's deferred tax assets for the current year.

ASC 740 is the GAAP equivalent of the Form 1120 Schedule UTP.

Create, Inc., a domestic corporation, owns 100% of Vinyl, Ltd., a foreign corporation and Digital, Inc., a domestic corporation.Create also owns 12% of Record, Inc., a domestic corporation.Create receives no distributions from any of these corporations.Which of these entities' net income are included in Create's income statement for current year financial reporting purposes?

If a corporation has no operations outside the U.S., its GAAP book and taxable income are identical.

The best estimate of the actual current-year income tax liability i.e., perhaps the amountof the checks that the taxpayer will write to taxing jurisdictions) is the: