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Exam 17: Accounting for Income Taxes

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Question 21

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Which of the following statements about uncertain tax position disclosures is false?

A) ASC 740 requires a company to disclose the amount of unrecognized tax benefits for each country in which it files a tax return
B) ASC 740 requires a company to disclose the aggregate amount of unrecognized tax benefits, separated between U.S., state and local, and international tax positions
C) ASC 740 requires a company to disclose the aggregate amount of unrecognized tax benefits without separation between U.S., state and local, and international tax positions

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

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Question 22

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

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Question 23

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Abbot Corporation reported pretax book income of $500,000. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, Abbot received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Using a tax rate of 34%, Abbot's current income tax expense or benefit would be:

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.

Potential interest and penalties that would be assessed on a disallowed unrecognized tax benefit must be recorded in a company's income tax expense under ASC 740.

Which of the following statements best describes the objective(s) of ASC 740?

Tuna Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. Finally, Tuna subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Book equivalent of taxable income is:

The classification of a deferred tax asset as current or long-term usually depends on the balance sheet classification of the asset or liability to which it relates.

Costello Corporation reported pretax book income of $500,000. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, Costello received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Using a tax rate of 34%, Costello's deferred income tax expense or benefit would be:

Which of the following statements is true?

Purple Rose Corporation reported pretax book income of $500,000. Tax depreciation exceeded book depreciation by $300,000. In addition, the company received $250,000 of tax-exempt life insurance proceeds. The prior year tax return showed taxable income of $100,000. Using a tax rate of 34%, compute Purple Rose's current income tax expense or benefit.

Yellow Rose Corporation reported pretax book income of $1,000,000. Tax depreciation exceeded book depreciation by $100,000. During the year Yellow Rose capitalized $50,000 into ending inventory under §263A. Capitalized inventory costs of $75,000 in beginning inventory were deducted as part of cost of goods sold on the tax return. Using a tax rate of 34%, compute Yellow Rose's taxes payable or refundable.

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?

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:

Irish Corporation reported pretax book income of $1,000,000 in 2014. Included in the computation were favorable temporary differences of $300,000, unfavorable temporary differences of $100,000, and favorable permanent differences of $200,000. Compute Irish's book equivalent of taxable income. Use this number to compute the company's total income tax provision or benefit for 2014, assuming a tax rate of 34%.

Which of the following organizations does not issue rules that apply to accounting for income taxes?

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

Which of the following statements is true?

Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as:

Which of the following items is not considered evidence in determining if a valuation allowance is necessary?