FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 14: Taxes on the Financial Statements

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

True/False

Review LaterAdd Note

Review Later

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.

A) True
B) False

Correct Answer

verified

Show Answer

Question 22

True/False

Review LaterAdd Note

Review Later

Temporary differences are book-tax differences that appear in both the GAAP financial statements and the Federal income tax return but not in the same reporting period.

A) True
B) False

Correct Answer

verified

Show Answer

Question 23

True/False

Review LaterAdd Note

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

The current tax expense reported on the GAAP financial statements generally represents the taxes actually payable to domestic or foreign governmental authorities.

Healy, Inc., reports an effective tax rate in its income tax footnote of 6%. The only reconciling item with regard to the hypothetical tax at 21% is a valuation allowance reversal of negative 15%. Which of the following statements is true concerning comparing Healy's effective tax rate with its competitors, all of whom have an effective tax rate between 20 and 24%?

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. $\begin{array} { c c c } \begin{array} { c } \text { Resulting Estimated } \\\text { Tax Benefit }\end{array} & \begin{array} { c } \text { Probability of Agreement } \\\text { between JiangCo and IRS }\end{array} & \begin{array} { c } \text { Cumulative Probability } \\\text { of Agreement }\end{array} \\\text { \$3 million } & 10 \% & 10 \% \\\text { \$2 million } & 35 \% & 45 \% \\\text { \$1.6 million } & 40 \% & 85 \% \\\text { \$1.1 million } & 15 \% & 100 \%\end{array}$ Under ASC 740-10, JiangCo's book income tax expense for this item is:

Purple, Inc., a domestic corporation, owns 80% of Blue, Ltd., a foreign corporation and Yellow, Inc., a domestic corporation. Purple also owns 50% of Green, Inc., a domestic corporation. Purple receives no distributions from any of these corporations. Which of these entities' net income is included in Purple's Federal income tax return for the current year, assuming that Purple elects to include all eligible entities in its consolidated Federal income tax return?

Book-tax differences can be explained in part by examining the objectives underlying financial accounting and taxable income computations. Evaluate this statement.

The release of a valuation allowance may relate to a tax planning strategy adopted by the taxpayer that will produce taxable income in the future.

Which of the following items is not included in the income tax footnote for a publicly traded company?

Jacobsen Corporation has determined the appropriate changes to its deferred tax accounts. Its auditor now is discussing whether to place a valuation allowance against the deferred tax asset on the balance sheet. List some of the factors that the Jacobsen auditor will consider in this regard.

The valuation allowance can reduce either a deferred tax asset or a deferred tax liability.

Hot, Inc.'s primary competitor is Cold, Inc. When comparing relative deferred tax asset and liability accounts with Cold, which of the following benchmarking activities should Hot undertake?

At the beginning of the year, the balance sheet of Schrader, Inc., shows a $500,000 deferred tax asset relating to a net operating loss carryforward offset by a $90,000 valuation allowance. At the end of the year, Schrader's auditors agree to release $20,000 of the allowance. Provide the journal entry to record this change in the valuation allowance.

An example of a deferred tax asset is the excess of accelerated MACRS depreciation over GAAP straight-line depreciation.

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. It's tax expense on its GAAP financial statements and its tax liability reported on its Federal income tax return are identical.

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?

If a valuation allowance is decreased released) in the current year, the corporation's effective tax rate is lower than had the valuation allowance not decreased.

Budlow, Inc., reported the following results for the current year. $\begin{array}{lr}\text { Book income (before tax) } & \$ 500,000 \\\text { Tax depreciation in excess of book } & 75,000 \\\text { Warranty expense, not deductible currently } & 17,500 \\\text { Municipal bond interest income } & 10,000\end{array}$ Determine Budlow's taxable income for the current year. Identify any temporary or permanent book-tax differences.

Van Dyke, Inc., hopes to report a total book-tax expense of $150,000 in the current year. This amount consists of $200,000 in current tax expense and a $50,000 tax benefit related to the expected future use of an NOL by Van Dyke. If the auditors determine that a valuation allowance of $20,000 must be placed against Van Dyke's deferred tax Assets, what is Van Dyke's total book-tax expense?