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Exam 16: Income Taxes

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Question 31

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Dodger Corporation reported a loss for both financial reporting purposes and tax reporting purposes of $231,000 in 2011. For financial reporting purposes, Dodger reported income before taxes for years 2008-2010 as listed below: Assuming Dodger's tax rate is 30 percent in all periods, and that the company uses the carryback provisions, what amount should appear in Dodger's statements for financial reporting purposes as a net loss in 2011?

A) $0
B) $69,300
C) $161,700
D) $234,300

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Question 32

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Walsh Services computed pretax financial income of $220,000 for its first year of operations ended December 31, 2011. In preparing the income tax return for the year, the tax accountant determined the following differences between 2011 financial income and taxable income: The temporary difference is expected to reverse in the following pattern: The enacted tax rates for this year and the next three years are as follows: Use the provisions of FASB Statement No. 109.

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Question 33

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Cardinal Industries computed a pretax financial income of $118,500 for the first year of its operations ended December 31, 2011. Cardinal uses an accelerated cost recovery method on its tax return, and straight-line depreciation on its books. The difference between the tax and book deduction for depreciation over the five-year life of the assets acquired in 2011 are as follows: The enacted tax rates for this year and the next four years are as follows: Use the provisions of FASB Statement No. 109 and assume that it is more likely than not that income will be sufficient in all future years to realize any deductible amounts.

The following information was taken from Buccaneer Corporation's 2011 income statement: Buccaneers' first year of operations was 2011. The company has a 30 percent tax rate. Management decided to use accelerated depreciation for tax purpose and the straight-line method of depreciation for financial reporting purposes. The amount charged to depreciation expense in 2011 was $600,000. Assuming no other differences existed between book income and taxable income, what amount did Buccaneer deduct for depreciation on its tax return for 2011?

A deferred tax liability arising from the use of an accelerated method of depreciation for tax purposes and the straight-line method for financial reporting purposes would be classified on the balance sheet as

Beta had taxable income of $1,500 during 2011. Beta used accelerated depreciation for tax purposes ($2,000) and straight-line depreciation for financial reporting purposes ($800) . On December 30, 2011, Beta collected the January 2012 rent of $600 on a lot it rents on a month-by-month basis to Phillips. Beta's pretax accounting income for 2011 would be

A major conceptual issue regarding the accounting for income taxes is the recognition of income taxes as expenses. Some would argue that income taxes are not directly related to revenues or revenue-seeking functions and should not be considered as expenses. Some view income taxes as a distribution of income similar to dividends. This view would hold that income taxes, like dividends, are paid only if income is earned. Wages and supplies, on the other hand, are paid for whether the entity earns a profit or incurs a loss. Identify arguments that can be made for recognizing income tax as an expense on the income statement.

Which of the following could never be subject to interperiod tax allocation?

Which of the following arguments is supportive of allocation of income taxes?

For the current year, Northern Pacific Company reported income tax expense of $11,000. Income taxes payable at the end of the prior year were $9,000 and at the end of the current year were $10,000. The deferred tax liability classified as noncurrent that resulted from the use of MACRS for tax purposes and straight-line depreciation for financial reporting purposes increased from $11,000 at the beginning of the current year to $13,000 at the end of the current year. How much cash was paid for income taxes during the year?

Which of the following statements is not correct?

SFAS No. 109 uses the term "tax-planning strategy". The meaning of this term in the pronouncement is somewhat different from its usage in ordinary business conversation. Typically, one would expect the term tax-planning strategy to connote the actions management takes to minimize the enterprise's long-run tax obligation. An enterprise may, for example, structure its credit sales activities such that these sales would qualify for treatment as installment sales for tax purposes. Such an approach would allow the deferral of taxable revenue until cash is actually received. The use of the term tax-planning strategy in SFAS No. 109 differs from the traditional use, however. Required: Explain the meaning of the term "tax-planning strategy" as the term is used in SFAS No. 109.

For three consecutive years, 2009-2011, Twins Corporation has reported income before taxes of $100,000 for both financial reporting purposes and tax reporting purposes. During this time, Twins income tax rates were as follows: In 2012, Twins' tax rate changed to 35 percent. Also in 2012, the company reported a loss for both financial reporting and tax reporting purposes of $100,000. Assuming the company uses the carryback provisions, the amount Twins' should report as an income tax refund receivable in 2012 is

An item that would create a permanent difference in pretax financial and taxable incomes would be

Which of the following is an example of a temporary difference that could result in a deferred tax asset?

All of the following can result in a temporary difference between pretax financial income and taxable income except

Pretax accounting income is $100,000 and the tax rate is 40%. Included in income is a $20,000 fine levied for pollution violations and other infractions during the year. In the reconciliation of the statutory and effective rate (beginning with the statutory rate) , which one of the following amounts would appear?

SFAS No. 109 allows the recognition of deferred tax assets for both operating loss carryforwards and temporary differences arising from normal operations. This provision of SFAS No. 109 represents a significant change from the requirements of SFAS No. 96 and APB Opinion No. 11 in which stringent limits were placed on the recognition of deferred tax assets. SFAS No. 109 does require some recognition of the uncertainty associated with deferred tax assets, however. Required: Explain how SFAS No. 109 addresses uncertainty associated with deferred tax assets and how the approach in SFAS No. 109 compares with the approach adopted in SFAS No. 5 regarding contingencies.

Recognizing tax benefits in a loss year due to a loss carryforward requires

Which of the following situations would require interperiod income tax allocation procedures?