Matthew Company reported $350000 in income before income tax for financial reporting(book) purposes in Year
1.
Matthew Company reported $350000 in income before income tax for
financial reporting(book) purposes in Year 3, its first year of operation. The tax depreciation exceeded its book
depreciation of $30000. The tax income
rate for Year 3 and all future years is 40%.
What amount of deferred income tax should Matthew report in its December
31, Year 3, balance sheet?
a) $8000 deferred tax asset
b) $9000 deferred tax
liability
c) $10000 deferred tax asset
d) $12000 deferred tax
liability
2.
Matthew Company reported $350000 in income before income tax for
financial reporting(book) purposes in Year 3, its first year of operation. The tax depreciation exceeded its book
depreciation of $30000. The tax income
rate for Year 3 and all future years is 40%.
If Matthew paid no estimated taxes, what amount of income taxes payable
should be reported in its December 31, Year 3, balance sheet?
a) $100000
b) $120000
c) $128000
d) $140000
3.
Matthew Company reported $350000 in income before income tax for
financial reporting(book) purposes in Year 3, its first year of operation. The tax depreciation exceeded its book
depreciation of $30000. The tax income
rate for Year 3 and all future years is 40%.
What would the income tax expense reported on Matthew’s income statement
for Year 3 be?
a) $120000
b) $128000
c) $140000
d) $152000
4.
Matthew Company reported $350000 in income before income tax for
financial reporting(book) purposes in Year 3, its first year of operation. The tax depreciation exceeded its book
depreciation of $30000. The tax income
rate for Year 3 and all future years is 40%.
The journal entry to record the taxes for Matthew Company at December
31, Year 3, would be which one of the following?
a) DR Income tax expense 140000
CR Deferred income tax payable 12000
CR Income tax payable 128000
b) DR Income tax expense 128000
CR Cash 128000
c) DR Income tax expense 140000
CR Cash 140000
d) DR Income tax expense 152000
CR Deferred income tax payable 140000
CR Income tax payable 12000
5.
William Company reported $550000 in financial (book) income before
taxes in Year 3. Tax depreciation for
the year exceeded book depreciation by $50000.
The tax rate for Year 3 was 30% and Congress enacted a tax rate of 40%
for years after Year 3. What is the
deferred tax reported on William’s December 31, Year 3, balance sheet?
a) $15000 deferred tax asset
b) $15000 deferred tax
liability
c) $20000 deferred tax asset
d) $20000 deferred tax
liability
6.
William Company reported $550000 in financial (book) income before
taxes in Year 3. Tax depreciation for
the year exceeded book depreciation by $50000.
The tax rate for Year 3 was 30% and Congress enacted a tax rate of 40%
for years after Year 3. How much is the
income tax expense reported on William’s income statement for Year 3?
a) $120000
b) $125000
c) $150000
d) $170000
7.
William Company reported $550000 in financial (book) income before
taxes in Year 3. Tax depreciation for
the year exceeded book depreciation by $50000.
The tax rate for Year 3 was 30% and Congress enacted a tax rate of 40%
for years after Year 3. If William paid
no estimated taxes, what is the amount of income tax payable reported on
William’s balance sheet at December 31, Year 3?
a) $120000
b) $122500
c) $150000
d) $170000
8.
Amanda Company began manufacturing operations on January 2, Year
4. In Year 4, Amanda earned a pretax
book income of $300000 and taxable income of $400000. The difference related to accrued product
warranty costs are expected to be paid out as follows: Year 5: $60000; Year 6:
$30000 and Year 7: $10000. The enacted
tax rates are 30% for Years 4 and 5 and 40% for Years 6 and 7. The deferred tax to be reported on Amanda’s
December 31, Year 4, balance sheet is a:
a) $30000 deferred tax asset
b) $30000 deferred tax
liability
c) $34000 deferred tax asset
d) $34000 deferred tax
liability
9.
Amanda Company began manufacturing operations on January 2, Year
4. In Year 4, Amanda earned a pretax
book income of $300000 and taxable income of $400000. The difference related to accrued product
warranty costs are expected to be paid out as follows: Year 5: $60000; Year 6:
$30000 and Year 7: $10000. The enacted
tax rates are 30% for Years 4 and 5 and 40% for Years 6 and 7. If Amanda paid no estimated taxes, what is
the income tax payable to be reported at the end of Year 4?
a) $120000
b) $125000
c) $130000
d) $134000
10.
Amanda Company began manufacturing operations on January 2, Year
4. In Year 4, Amanda earned a pretax
book income of $300000 and taxable income of $400000. The difference related to accrued product
warranty costs are expected to be paid out as follows: Year 5: $60000; Year 6:
$30000 and Year 7: $10000. The enacted
tax rates are 30% for Years 4 and 5 and 40% for Years 6 and 7. What is the income tax expense to be reported
by Amanda on the Year 4 income statement?
a) $86000
b) $90000
c) $130000
d) $134000
11.
At the beginning of Year 1,
Kellan Company purchases a machine costing $6000 with a 3 year estimated
service life and no salvage value. For
financial reporting(book) purposes, Kellan uses straight line depreciation with
a 3 year life. For income tax reporting,
the machine is depreciated with a 2 year life.
The machine is used to manufacture a product that will generate annual
revenue of $5000 for 3 years. Warranty
expenses are estimated at 10% of revenues each year; all repairs are provided
in Year 3. The tax rate is 40% in all 3
years. What is the balance at the end of
Year 2 of Kellan’s deferred tax asset and deferred tax liability?
a) $200 asset; $400 liability
b) $400 asset; $800 liability
c) $800 asset; $800 liability
d) $1000 asset; $800
liability
12.
A corporation that incurs a pretax operating loss must:
a) Carryback the loss for tax
purposes
b) Carryforward the loss for
tax purposes
c) Choose to both carryback
and carryforward the loss or to only carryback the loss
d) Choose to both carryback
and carryforward the loss or to only carryforward the loss
13.
What circumstances lead to the recording of a deferred tax asset?
a) A deferred tax asset
results when a transaction results in a difference that causes financial income
to be less than taxable income.
b) A deferred tax asset
results when a transaction results in a difference that causes financial income
to be less than financial income.
c) A deferred tax asset
results when a transaction reverses a difference, causing financial income to
be less than taxable income.
d) A deferred tax asset
results when a transaction reverses a difference, causing financial income to
be less than financial income.
14.
The balance in the deferred tax asset valuation allowance was $23
million in Year 5 and $16 million in Year 6.
What effect did the change in this allowance have on the Year 6 income
statement?
a) Decreases in the allowance
suggest that the firm does not expect to realize future sources of taxable
income.
b) The decline in the
valuation allowance is recognized as nonoperating income on the income
statement.
c) The decline in the
valuation allowance is recognized as an increase in income from continuing
operations because of lower income tax expense.
d) The decline in the
valuation allowance does not affect the income statement since it is offset by
a lower deferred tax asset amount.
15.
The ratio of pretax book income to taxable income per tax return is
the ______ ratio.
a) Acid-test
b) Earnings conservatism
c) Income
d) Times taxes earned
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