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The tax effects of permanent differences are always reported solely in a company's computation of its effective tax rate. Some permanent differences (excess windfall benefits from NQO deductions) show up in shareholders' equity.

A) True
B) False

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A cumulative financial accounting (book) loss over three years likely would be considered significant negative evidence in a valuation allowance analysis.

A) True
B) False

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Which of the following statements concerning the classification of deferred tax assets and liabilities is false?


A) A deferred tax asset is classified as noncurrent if the company expects the future tax benefit to be received more than 12 months from the balance sheet date.
B) A deferred tax asset related to a bad debt reserve is classified as noncurrent if the company expects the bad debt to be charged off more than 12 months from the balance sheet date.
C) A deferred tax asset related to a bad debt reserve is classified as current if the related accounts receivable is classified as a current asset.
D) A deferred tax asset related to inventory capitalization is classified as noncurrent if the company uses a FIFO accounting method and the inventory to which the deferred tax asset relates will not be treated as sold within 12 months from the balance sheet date.

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

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Stone Corporation reported pretax book income of $1,000,000 in 2016. 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 $29,000 at the beginning of the year, representing a net deductible temporary difference of $100,000. During the year, the company's tax rate increased from 29% to 30%. Compute the Company's current and deferred income tax expense or benefit for 2016.

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$195,000 current income tax ex...

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


A) The company's cash taxes paid divided by taxable income
B) The company's cash taxes paid divided by net income from continuing operations
C) The company's financial statement income tax provision divided by taxable income
D) The company's financial statement income tax provision divided by net income from continuing operations

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

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Which of the following items is not a temporary difference?


A) Vacation pay accrued for tax purposes in a prior period is deducted in the current period
B) Tax depreciation for the period exceeds book depreciation
C) A goodwill impairment expense is recorded on the income statement; the goodwill did not have a tax basis when it was created
D) Bad debts charged off in the current period exceed the bad debts accrued in the current period

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

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


A) BETI is book income adjusted for all permanent and temporary differences
B) BETI is book income adjusted for all temporary differences
C) BETI is book income adjusted for all permanent differences
D) BETI is book income before adjustment for all permanent and temporary differences

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

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A corporation evaluates the need for a valuation allowance by comparing both positive and negative evidence that the corporation will realize a deferred tax asset in the future.

A) True
B) False

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As part of its uncertain tax position assessment, Madison Corporation records interest and penalties related to its unrecognized tax benefits of $1,000,000. Which of the following statements about recording this amount is most correct?


A) Madison must record the expense separate from its income tax provision.
B) Madison can elect to include the expense as part of its income tax provision or record the expense separate from its income tax provision, provided the company discloses which option it chose.
C) Madison must record the expense in its income tax provision.
D) Madison does not record the expense until it is paiD.ASC 740 allows either, provided the method is disclosed.

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

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Price Corporation reported pretax book income of $600,000 in 2016. Tax depreciation exceeded book depreciation by $100,000. In addition, the reserve for warranties increased by $40,000. Price had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000. During the year, the company's tax rate decreased from 34% to 30%. Compute the Company's current and deferred income tax expense or benefit for 2016.

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$162,000 current income tax expense and ...

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Milton Corporation reported pretax book income of $2,500,000. Included in the computation were favorable temporary differences of $400,000, unfavorable temporary differences of $150,000, and favorable permanent differences of $100,000. Using a tax rate of 34%, compute Milton's deferred income tax expense or benefit.

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$85,000 deferred income tax ex...

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Which of the following items is not a permanent book/tax difference?


A) Tax-exempt life insurance proceeds
B) Non-deductible meals and entertainment expense
C) Accrued vacation pay liability not paid within the first 2½ months of the next tax year
D) Domestic production activities deduction

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

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Which of the following statements about ASC 740 as it relates to uncertain tax positions is true?


A) ASC 740 deals with all tax benefits involving income and non-income taxes.
B) ASC 740 deals with whether a recognized income tax benefit will be realized.
C) ASC 740 deals with recognized tax benefits related to income tax positions claimed on a filed tax return.
D) ASC 740 deals with recognized tax benefits related to income tax positions regardless of whether the item is taken on a filed tax return.

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

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Weaver 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. During the year, Weaver 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, the company's tax rate decreased from 34% to 30%. Weaver's deferred income tax expense or benefit for the current year would be:


A) Net deferred tax benefit of $9,000
B) Net deferred tax expense of $9,000
C) Net deferred tax benefit of $5,000
D) Net deferred tax expense of $5,000

E) A) and B)
F) None of the above

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Temporary differences that are cumulatively "favorable" are defined as taxable temporary differences.

A) True
B) False

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Which of the following statements is true?


A) Another name for a taxable temporary difference is an unfavorable difference
B) Another name for a taxable temporary difference is a favorable difference
C) Another name for a deductible temporary difference is a favorable difference
D) Another name for a deductible temporary difference is a permanent difference

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

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


A) The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's net income from continuing operations.
B) The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's taxable income.
C) The hypothetical tax expense is the tax that would be due if the company's statutory tax rate was applied to the company's book equivalent of taxable income.
D) The hypothetical tax expense is another name for the company's effective tax rate.

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

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Which of the following taxes would not be accounted for under ASC 740?


A) Income taxes paid to the German government.
B) Income taxes paid to the U.S. government.
C) Value-added taxes paid to the Swiss government.
D) Income taxes paid to the City of New York.

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

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Which of the following items is not a reconciling item in the income tax footnote?


A) Compensation deduction related to incentive stock options
B) Compensation deduction related to nonqualified stock options that were expensed for financial accounting purposes
C) Domestic production activities deduction
D) State and local income taxes

E) All of the above
F) B) and D)

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ASC 740 deals with accounting for uncertain tax positions.

A) True
B) False

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