TaxEX2

214 terms by hneagle1 

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F

In general, a corporation may choose to use either the accrual or cash method of accounting no matter how large the corporation.

F

Corporations calculate adjusted gross income (AGI) just as individuals do.
True False

F

Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues. True False

F

Large corporations are allowed to use the cash method of accounting for at least the first two years of their existence.
True False

T

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.
True False

F

An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income.
True False

T

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.
True False

F

Federal income tax expense reported on a corporation's books generates a temporary book-tax difference.
True False

T

For a corporation, goodwill created in an asset acquisition generally leads to temporary book-tax differences.
True False

F

In a given year, Makoto Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. It has a favorable temporary book-tax difference for that year.
True False

T

For incentive stock options granted when ASC 718 (a codification of FAS 123R) applies, the value of the options that vest in a given year always creates a permanent, unfavorable book-tax difference.
True False

F

In contrast to an individual, a corporation may deduct the entire amount of a net capital loss.
True False

F

A corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.
True False

F

A corporation may carry a net capital loss back two years and forward 20 years.
True False

T

A corporation may carry a net capital loss back three years and forward five years.
True False

T

Corporations can carry net operating losses (in years other than 2008 and 2009) back two years and forward 20 years.
True False

F

Jingo Corporation incurred a net operating loss in 2011. If it carries the loss back, it must first carry the loss back to offset its 2010 taxable income and then it carries any remaining loss back to offset its 2009 taxable income.
True False

F

Net operating losses generally create permanent book-tax differences.
True False

T

Net capital loss carryovers but not carrybacks are deductible against capital gains in determining a corporation's net operating loss for the year.
True False

F

Accrual-method corporations are never allowed to deduct charitable contributions until they actually make payment to the charity.
True False

T

GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank, a qualified non- profit organization, in November of 2011. GenerUs made payment to FoodBank on February 2, 2012. GenerUs Inc. (a calendar-year corporation) may claim a deduction for the contribution on its 2011 tax return.
True False

T

NOL and capital loss carryovers are deductible in calculating the charitable contribution limit modified taxable income, while NOL and capital loss carrybacks are not.
True False

T

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.
True False

T

A corporation will generally report a favorable, temporary book-tax difference when it deducts a charitable contribution carryover.
True False

T

Corporations are not allowed to deduct charitable contributions in excess of 10% of the corporation's taxable income (before the charitable contribution and certain other deductions).
True False

T

The dividends received deduction is designed to mitigate the extent to which corporate earnings are subject to more than two levels of taxation.
True False

F

Corporations compute their dividends received deduction by multiplying the dividend amount by 10 percent, 50 percent, or 100 percent depending on their ownership in the distributing corporation's stock.
True False

F

The dividends received deduction cannot cause a net operating loss. The deduction can reduce income to zero but not below zero.
True False

T

The dividends received deduction is subject to a limitation based on income.
True False

T

Taxable income of the most profitable corporations is subject to a flat 35% tax rate.
True False

T

Controlled group provisions in the tax law prevent taxpayers from splitting a corporation into several smaller corporations to take advantage of low marginal corporate tax rates at low levels of income. True False

F

Three brothers each own 20 percent of the stock in three corporations. Because no single brother owns more than 50 percent of a corporation, the tax law would not treat the corporations as a controlled group.
True False

F

The corporate tax form is Form 1065.
True False

F

Schedule M-1 reconciles from book income to bottom line taxable income (the taxable income that is applied to the tax rates to determine the corporation's gross tax liability).
True False

F

Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as either temporary or permanent.
True False

F

By default, an affiliated group must file a consolidated tax return.
True False

F

The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes.
True False

T

Calendar-year corporations that request an extension for filing their tax returns will have a tax return due date of September 15.
True False

F

Volos Company (a calendar-year corporation) began operations in March of 2009 and was not profitable through December of 2010. Volos has been profitable for the first quarter of 2011 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement
in 2011 because it had no tax liability for the 2010 tax year and has been in business for at least 12 months.
True False

T

Most corporations use the annualized income method to determine their required annual payment for purposes of making quarterly estimated payments.
True False

F

Large corporations (corporations with over $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year.
True False

F

For estimated tax purposes, a "large" corporation is any corporation with average annual gross receipts of $5,000,000 in the three years prior to the current year. True False

T

A corporation with a minimum tax credit carryover may reduce regular tax down to the amount of its tentative minimum tax when its regular tax exceeds its tentative minimum tax.
True False

B

Which of the following is not calculated in the corporate income tax formula?
A. Gross income
B. Adjusted gross income
C. Taxable income
D. Regular tax liability

B

In January 2011, Khors Company issues nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2011, the company experiences a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $60,000. For 2011, what is the book-tax difference due to the options exercised? A. 10,000 unfavorable
B. 10,000 favorable
C. 50,000 unfavorable
D. 60,000 favorable

D

In January 2011, Khors Company issues nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2011, the company experiences a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $40,000. For 2011, what is the nature of the book-tax difference due to the options exercised? A. Favorable and temporary
B. Favorable and permanent
C. Unfavorable and temporary
D. Unfavorable and permanent
E. Not enough information to determine.

A

Which of the following does NOT create a permanent book-tax difference?
A. Organizational and start-up expenses
B. Key employee death benefit income
C. Fines and penalties expenses
D. Municipal bond interest income

D

Which of the following does NOT create a temporary book-tax difference?
A. Deferred compensation
B. Bad-debt expense
C. Depreciation expense
D. Domestic production activities deduction

B

Which of the following statements regarding book-tax differences is true?
A. Corporations are not required to report book-tax differences on their income tax returns.
B Corporations will eventually recognize the same amount of income for book and tax purposes for income-related temporary book-tax differences.
C. Income excludable for tax purposes usually creates a temporary book-tax difference.
D. None of the above is true.

C

It is important to distinguish between temporary and permanent book-tax differences for which of the following reasons?
A. Temporary book-tax differences will reverse in future years whereas permanent differences will not. B. Certain corporations are required to disclose book-tax differences as permanent or temporary on their
tax returns.
C. Both A and B
D. Neither A nor B

B

TrendSetter Inc. paid $50,000 in premiums for life insurance coverage for its key employees. What is the nature of the book-tax difference created by this expense?
A. Permanent; favorable
B. Permanent; unfavorable
C. Temporary; favorable
D. Temporary; unfavorable

B

iScope Inc. paid $3,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book-tax difference relating to this expense?
A. Permanent; favorable
B. Permanent; unfavorable
C. Temporary; favorable
D. Temporary; unfavorable

D

AmStore Inc. sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation and MACRS for tax cost-recovery. If accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes, what is the nature of the book-tax difference associated with the gain on the sale?
A. Permanent; favorable
B. Permanent; unfavorable
C. Temporary; favorable
D. Temporary; unfavorable

A

Corporation A receives a dividend from Corporation B. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference). If A has accounted for the dividend correctly (following the general rule), how much of B stock does A own?
A. A owns less than 20 percent of the stock of B
B. A owns at least 20 but not more than 50 percent of the stock of B C. A owns more than 50 percent of the stock of B
D. Cannot be determined

B

Corporation A receives a dividend from Corporation B. It includes the dividend in gross income for
tax purposes but includes a pro-rata portion of B's earnings in its financial accounting income. If A has accounted for the dividend correctly (using the general rule), how much of B's stock does A own?
A. A owns less than 20 percent of the stock of B
B. A owns at least 20 but not more than 50 percent of the stock of B C. A owns more than 50 percent of the stock of B
D. Cannot be determined

A

Coop Inc. owns 40 percent of Chicken Inc., both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in 2011. Chicken also reports financial accounting earnings of $20,000 for that year. Assume that Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction)?
A. $2,000 unfavorable
B. $2,000 favorable
C. $10,000 unfavorable
D. $10,000 favorable
E. None of the above

A

Over what time period do corporations amortize purchased goodwill for tax purposes?
A. 180 months
B. 150 months
C. 60 months
D. None of the above

C

Which of the following statements regarding book-tax differences associated with purchased goodwill is false?
A. It is possible to have no book-tax difference in a year when there is no goodwill amortization for tax purposes.
B. In a year when goodwill is impaired and yet fully amortized for tax purposes (so no tax amortization of the goodwill for that year), the book-tax difference will be unfavorable.
C. Temporary book-tax differences associated with goodwill are always favorable.
D If goodwill has been fully amortized for tax purposes in a previous year, the book-tax difference is equal to the amount of impairment recognized.

B

Which of the following statements regarding capital gains and losses is false?
A. In terms of tax treatment, corporations generally prefer capital gains to ordinary income.
B. Like individuals, corporations can deduct $3,000 of net capital losses against ordinary income in a given year.
C. C corporations can carry back net capital losses three years and they can carry them forward for five years.
D. Corporations must apply capital loss carrybacks and carryovers in a particular order.

D

For corporations, which of the following regarding net capital losses is true?
A. A corporation that experiences a net capital loss has a favorable book-tax difference in the year of the loss.
B. A corporation that experiences a net capital loss in year 4 first carries the loss back to year 3, then year 2, and then year 1 before carrying it forward.
C. Net capital loss carrybacks are deductible in determining a corporation's net operating loss.
D. Net capital loss carrybacks and carryovers create temporary book-tax differences if they are used before they expire.

D

Studios reported a net capital loss of $30,000 in year 5. It reported net capital gains of $14,000 in year 4 and $27,000 in year 6. What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover?
A. $11,000 unfavorable
B. $11,000 favorable
C. $16,000 unfavorable
D. $16,000 favorable

B

Twoo Inc. reported a net capital loss of $13,000 in 2011. It had a net capital gain of $4,300 in 2009 and $3,000 in 2008. In 2010, though the company suffered a net operating loss, it had net capital gains of $1,000. What is the amount of the Twoo's capital loss carryover remaining after it applies the carryback?

A. $4,700
B. $5,700
C. $8,700
D. $13,000

C

BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year. What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?
A. Permanent; favorable
B. Permanent; unfavorable
C. Temporary; favorable
D. Temporary; unfavorable

A

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?
A. Charitable contribution deduction
B. Domestic production activities deduction
C. Net capital loss carryback
D. Net operating losses from other years

B

Which of the following statements regarding net operating losses generated in 2011 is true?
A. Corporations can carry net operating losses back two years and forward up to 15 years.
B. A corporation may elect to forgo carrying a net operating loss back and instead carry it over to future years.
C When a corporation applies a net operating loss carryover, it reports a favorable, permanent book-tax difference in the amount of the applied carryover.
D. Marginal tax rates are irrelevant in determining the tax benefit of applying a net operating loss carryback or carryover
E. None of the above is a true statement.

D

Which of the following statements regarding charitable contributions is false?
A. Only contributions made to qualified charitable organizations are deductible.
B. Charitable contribution deductions are subject to a limitation based on the corporation's taxable income (before certain deductions).
C. Corporations can qualify to deduct a contribution before actually paying the contribution to the charity.
D. The amount deductible for non-cash contributions is always the adjusted basis of the property donated.

B

Which of the following is unnecessary to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity?
A. Approval of the payment from the board of directors.
B. Approval from the IRS prior to making the contribution.
C. Payment made within two and one-half months of the tax year end.
D. All of the above are necessary.

B

Canny Foods Co. is considering three ways it could contribute to a local, qualified charity. First, it could give $5,000 in cash. Second, it could give stock it initially purchased two years ago for $4,000 but is now worth $6,000. Third, it could give items of inventory with a fair market value of $7,000 but with an adjusted basis of $3,000. Which of the following correctly describes the relation among possible charitable contributions in terms of amount deductible for tax purposes?
A. Cash > Stock > Inventory
B. Stock > Cash > Inventory
C. Inventory > Stock > Cash
D. Inventory > Cash > Stock

C

Which of the following is deductible in calculating the charitable contribution limit modified taxable income?
A. Net capital loss carrybacks
B. NOL carrybacks
C. NOL carryovers
D. Charitable contributions

D

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000. Its charitable contributions for the year were $7,500. What is Remsco's current-year charitable contribution deduction and contribution carryover?
A. $6,000 current-year deduction; $1,500 carryover
B. $7,500 current-year deduction; $0 carryover
C. $1,200 current-year deduction; $6,300 carryover
D. $7,200 current-year deduction; $300 carryover

D

If a corporation's cash charitable contributions exceed the charitable contribution deduction limit, what kind of book-tax difference is created?
A. Permanent; favorable
B. Permanent; unfavorable
C. Temporary; favorable
D. Temporary; unfavorable

C

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?
A. Corporations may not carry over or carry back excess charitable contributions.
B. Corporations can carry excess charitable contributions over to a future year or back to a prior year. C. Corporations can carry excess charitable contributions over to a future year but not back to a prior year.
D. Corporations can carry excess charitable contributions back to a prior year but not over to a future year.

B

Which of the following statements regarding the dividends and/or the dividends received deduction
(DRD) is true?
A. Dividends are taxed at preferential rates for corporations as well as for individuals.
B. The DRD can increase the net operating loss of a corporation.
C. Corporations are allowed to deduct from a dividend received the product of the dividend and the percentage of the receiving corporation's ownership distributing corporation's stock.
D. The DRD allows corporations to deduct the amount of dividends that they distribute.

A

Which of the following is deductible in calculating DRD modified taxable income?
A. Charitable contribution deduction
B. NOL carrybacks
C. NOL carryovers
D. Dividends received deduction

C

Jazz Corporation owns 50% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income before the dividend was $100,000. What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?
A. $0
B. $7,000
C. $8,000
D. $10,000

B

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?
A. $0
B. $5,600
C. $7,000
D. $8,000
E. None of the above.

D

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?
A. $0
B. $2,800
C. $4,200
D. $7,000
E. None of the above.

B

Together, Kurt and Esmeralda own 60 percent of three corporations: RAZ, DVA, and TRE. The three corporations would be considered as what kind of controlled group for tax purposes?
A. Parent-subsidiary
B. Brother-sister
C. Combined
D. The three corporations would not be considered to be a controlled group for tax purposes.

B

Which of the following statements regarding controlled groups is false?
A The purpose of the controlled group rules is to essentially treat the group as though it were one entity for purposes of determining certain tax benefits.
B Having several entities treated as a controlled group is advantageous for tax purposes because each corporation in the group is allowed to use the 15% tax bracket in the corporate tax rate schedule in computing its regular income tax liability.
C Lauren owns 100% of Corporation A stock and 100% of Corporation B stock. Corporation A and Corporation B form a controlled group.
D. Corporation A owns 100% of Corporation B. Corporation A and Corporation B form a controlled group.

C

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?
A In general, smaller corporations are required to complete Schedule M-1 while larger corporations are required to complete Schedule M-3.
B. Schedule M-3 lists more book-tax differences than M-1.
C. Both Schedule M-1 and M-3 reconcile to a corporation's bottom line taxable income.
D. Schedule M-1 does not distinguish between temporary and permanent book-tax differences while Schedule M-3 does.

B

Which of the following statements is false regarding consolidated tax returns?
A. An affiliated group can file a consolidated tax return only if it elects to do so.
B. In order to file a consolidated tax return, one corporation must own at least 50% of the stock of another corporation.
C For a group of corporations filing a consolidated tax return, an advantage is that losses of one group member may offset gains of another group member.
D. For a group of corporations filing a consolidated tax return, losses from certain intercompany transactions are deferred until realized through a transaction outside of the group.

B

.What is the unextended due date of the tax return of a calendar-year corporation?
A. February 15.
B. March 15.
C. April 15.
D. September 15.

D

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?
A. 100 percent of the prior year's tax liability (with a few exceptions)
B. 100 percent of the current year's tax liability
C. 100 percent of the estimated current year tax liability using the annualized income method
D.All of the above are acceptable methods of determining the required annual payment of federal income tax for corporations

B

Which of the following statements is false regarding corporate estimated tax payments?
A. The due dates for estimated tax payments are the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year.
B Corporations must pay estimated taxes only if they have a federal income tax liability greater than $10,000 (including the alternative minimum tax).
C Even though a corporation extends its tax return it still must pay its tax liability for the year by two and one half months after year end.
D. Corporations using the annualized income method for determining estimated tax payments project their tax liability for the year based on income from the first, second, and third quarters.

A

Omnidata uses the annualized income method to determine its quarterly federal income tax payments. It had $100,000, $50,000, and $90,000 of taxable income for the first, second, and third quarters, respectively ($240,000 in total through the first three quarters). What is Omnidata's annual estimated taxable income as of the end of the third quarter?
A. $300,000
B. $320,000
C. $400,000
D. $480,000

B

Rapidpro Inc. had more than $1,000,000 of taxable income two years prior to the current year. It would like to use its prior year tax liability (which was very low but above zero) to determine its quarterly estimated payments this year. Which of the following statements is true?
A Rapidpro may use the prior year tax liability to determine its first and second quarter estimated tax payments only since it is a large corporation.
B To avoid penalty, the second quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its first quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment).
C To avoid penalty, the third quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its third quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment).
D. None of the above is true.

D

Which of the following is not an AMT adjustment?
A. Adjustment for depreciation
B. Adjustment of gain or loss on sale of depreciable assets
C. Adjustment for adjusted current earnings (ACE)
D. Adjustment for domestic production activities deduction

C

XPO Corporation has a minimum tax credit of $51,000 from 2010. If its 2011 tentative minimum tax is
$211,000 and its regular tax liability is $250,000, what is its minimum tax credit carryover to 2012?
A. $51,000
B. $39,000
C. $12,000
D. $0

F

ASC 740 governs how a company accounts for all taxes it incurs.
True False

F

ASC 740 is the sole source of rules related to accounting for income taxes.
True False

T

Temporary differences create either a deferred tax asset or a deferred tax liability.
True False

T

Publicly-traded companies usually file their financial statements before they file their federal income tax returns.
True False

T

The Emerging Issues Task Force assists the FASB by providing guidance on the implementation of ASC
740 and other accounting pronouncements. True False

T

ASC 740 applies to the accounting for state and local and international income taxes as well as federal income taxes.
True False

F

The "current income tax expense or benefit" always represents the taxes paid or refunded in the current year.
True False

F

The focus of ASC 740 is the income statement.
True False

T

Tax-exempt interest from municipal bonds is an example of a permanent difference.
True False

F

The tax effects of permanent differences always show up in a company's computation of its effective tax rate.
True False

T

In general, a temporary difference reflects a difference in the financial basis and tax basis of an asset or liability on the balance sheet.
True False

T

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

F

Brown Corporation reports $100,000 of gain from the sale of land on its income statement. For tax purposes, Brown uses the installment method and reports gain of $10,000. The $90,000 difference in the gain reported is a deductible temporary difference.
True False

F

Congress reduces the corporate tax rate from 35 percent to 25 percent effective in 2012. The tax rate change will affect only deferred tax assets and liabilities that arise in 2012 and thereafter.
True False

F

A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.
True False

T

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.
True False

F

A corporation undertakes a valuation allowance analysis to determine if a deferred tax asset should be recognized on the balance sheet.
True False

T

Three consecutive years of financial accounting (book) losses likely would be considered negative evidence in a valuation allowance analysis.
True False

T

ASC 740 deals with accounting for uncertain tax positions.
True False

T

ASC 740 applies a two-step process in determining if an uncertain tax benefit should be recognized.
True False

F

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

F

Once determined, an unrecognized tax benefit under ASC 740 is not readjusted for subsequent events.
True False

F

A corporation is permitted by ASC 740 to net its current and long-term deferred tax liabilities.
True False

T

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.
True False

F

A corporation's effective tax rate as computed in its income tax note is the company's cash tax rate for the year.
True False

C

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.

D

Which of the following organizations does not issue rules that apply to accounting for income taxes?
A. FASB B. SEC C. EITF D. IRS

D

Which of the following statements best describes the objective(s) of ASC 740?
A. To compute a corporation's current income tax liability or benefit. B. To recognize deferred tax liabilities and assets.
C. To report permanent differences in the balance sheet.
D. To compute a corporation's current income tax liability or benefit and to recognize deferred tax liabilities and assets.

A

Which of the following best describes the focus of ASC 740?
A. ASC 740 takes an "asset and liability approach" that focuses on the balance sheet
B. ASC 740 takes an "income and expense approach" that focuses on the income statement
C. ASC 740 takes a "taxes paid or refunded approach" that focuses on the statement of cash flows
D ASC 740 takes a "permanent differences approach" that focuses on the effective tax rate reported in the
. income tax note to the financial statements

A

Which of the following items does not result in a permanent difference?
A. Accelerated tax depreciation in excess of straight-line book depreciation
B. Interest income from a tax-exempt municipal bond
C. Dividend received deduction on the income tax return
D. Domestic manufacturing deduction on the income tax return

B

Which of the following temporary differences creates a deferred tax asset in the year in which it originates?
A. Accelerated tax depreciation in excess of straight-line book depreciation
B. Prepayment income reported on the tax return prior to being reported on the income statement
C. Gain reported on the income statement prior to being reported on the tax return
D. Prepayment deduction reported on the tax return prior to being reported on the income statement

B

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

C

Grand River Corporation reported pretax book income of $500,000 in 2011. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $10,000, and favorable permanent differences of $90,000. Assuming a tax rate of 34%, the Corporation's current income tax expense or benefit for 2011 would be:
A. $170,000
B. $163,200
C. $108,800
D. $102,000

A

Packard Corporation reported pretax book income of $500,000 in 2011. Included in the computation were favorable temporary differences of $10,000, unfavorable temporary differences of $100,000, and unfavorable permanent differences of $90,000. Assuming a tax rate of 34%, the Corporation's current income tax expense or benefit for 2011 would be:
A. $231,200
B. $176,800
C. $170,000
D. $108,800

C

Abbot Corporation reported pretax book income of $500,000 in 2011. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, the Company received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Assuming a tax rate of 34%, the Corporation's current income tax expense or benefit for 2011 would be:
A. $186,320
B. $170,000
C. $157,080
D. $153,680

A

Abbot Corporation reported pretax book income of $500,000 in 2011. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, the Company received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Assuming a tax rate of 34%, the Corporation's deferred income tax expense or benefit for 2011 would be:
A. $11,900 net deferred tax expense B. $11,900 net deferred tax benefit C. $15,300 net deferred tax benefit D. $15,300 net deferred tax expense

A

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:
A. Deductible temporary difference
B. Taxable temporary difference
C. Favorable permanent difference
D. Unfavorable permanent difference

C

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

A

Smith Company reported pretax book income of $400,000 in 2011. Included in the computation were favorable temporary differences of $50,000, unfavorable temporary differences of $20,000, and favorable permanent differences of $40,000. Assuming a tax rate of 34%, the Company's deferred income tax expense or benefit for 2011 would be:
A. Net deferred tax expense of $10,200
B. Net deferred tax benefit of $10,200
C. Net deferred tax expense of $23,800
D. Net deferred tax benefit of $23,800

A

Which of the following book-tax basis differences results in a deductible temporary difference?
A. Book basis of an employee post-retirement benefits liability exceeds its tax basis
B. Book basis of a building exceeds the tax basis of the building
C. Book basis of an acquired intangible exceeds the tax basis of the intangible
D. Tax basis of a prepaid liability exceeds the book basis of the liability

C

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

B

Marlin Corporation reported pretax book income of $1,000,000 in 2011. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by
$100,000. Finally, the Company subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Assuming a tax rate of 34%, the Corporation's current income tax expense or benefit for 2011 would be:
A. $387,600
B. $377,400
C. $340,000
D. $292,400

C

Marlin Corporation reported pretax book income of $1,000,000 in 2011. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation
by $100,000. In prior years, tax depreciation exceeded book depreciation by a cumulative amount of
$500,000. Finally, the Company subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Assuming a tax rate of 34%, the Corporation's deferred income tax expense or benefit for 2011 would be:
A. $25,500 net deferred tax expense
B. $25,500 net deferred tax benefit
C. $42,500 net deferred tax benefit
D. $42,500 net deferred tax expense

A

Davison Company determined that the book basis of its liability for "other post-retirement benefits" (OPEB) exceeded the tax basis of this account by $10,000,000. This basis difference is characterized as:
A. Deductible temporary difference
B. Taxable temporary difference
C. Favorable permanent difference
D. Unfavorable permanent difference

B

Which of the following statements is true?
A. ASC 740 focuses on the income tax expense or benefit on the income statement
B. ASC 740 focuses on the balances in the deferred tax assets and liabilities on the balance sheet
C. ASC 740 focuses on the income taxes paid or refunded in the Statement of Cash Flows
D. ASC 740 focuses on the computation of a company's effective tax rate in the income tax note to the financial statements

C

Bruin Company received a $100,000 insurance payment on the death of its company president. The company annually paid $1,000 of non-deductible insurance premiums on the policy. Bruin reported the insurance receipt as income and deducted the premium payments on its books. For ASC 740 purposes, the income and deduction are characterized as:
A. Both are taxable temporary differences
B. Both are deductible temporary differences
C.The insurance receipt is a favorable permanent difference and the premium payment is an unfavorable permanent difference
D. The insurance receipt is a taxable temporary difference and the premium payment is an unfavorable permanent difference

C

Which of the following statements is true?
A. A change in capitalized inventory costs under §263A always produces an increase in a deferred tax asset.
B. A change in capitalized inventory costs under §263A always produces a decrease in a deferred tax asset.
C. A change in capitalized inventory costs under §263A can produce an increase or a decrease in a deferred tax asset.
D. A change in capitalized inventory costs under §263A always produces a permanent difference.

D

Robinson 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, Robinson 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 increased from 34% to 35%. The Company's deferred income tax expense or benefit for the current year would be:
A. Net deferred tax benefit of $10,500
B. Net deferred tax expense of $10,500
C. Net deferred tax benefit of $11,500
D. Net deferred tax expense of $11,500

C

Which of the following statements is true?
A.In determining if a valuation allowance is needed, positive evidence is considered more persuasive than negative evidence.
B. In determining if a valuation allowance is needed, negative evidence is considered more persuasive than positive evidence.
C. In determining if a valuation allowance is needed, negative and positive evidence must be evaluated equally.
D. In determining if a valuation allowance is needed, only negative evidence is evaluated.

A

Which of the following statements best describes a valuation allowance as it relates to accounting for income taxes?
A. A valuation allowance is a contra account to deferred tax assets only
B. A valuation allowance is a contra account to deferred tax liabilities only
C. A valuation allowance is a contra account to deferred tax assets and liabilities
D. A valuation allowance is a contra account to noncurrent deferred tax assets only

B

A valuation allowance is recorded against a deferred tax asset when:
A. It is probable that the deferred tax asset will not be realized in the future
B. It is more likely than not the deferred tax asset will not be realized in the future
C. It is highly likely the deferred tax asset will not be realized in the future
D. It is remote the deferred tax asset will not be realized in the future

B

Knoll Corporation has a cumulative book loss over the past 36 months. Which of the following statements best describes how this fact enters into the valuation allowance analysis?
A. The book loss is considered sufficient negative evidence that a valuation must be recorded.
B The book loss is considered negative evidence that must be evaluated along with other evidence as to
. whether a valuation allowance should be recorded.
C. The book loss is not considered negative evidence because it relates to book income and not taxable income.
D. A cumulative book loss is considered negative evidence only after a period of 60 months.

D

Which of the following items is not considered evidence in determining if a valuation allowance is necessary?
A. A cumulative book loss over some period of time.
B. Management projects future taxable income based on a backlog of signed contracts. C. A net operating loss expired unused in the current year.
D Management can implement a tax strategy to create future taxable income, but it will be detrimental to
. the future profitability of the company.

D

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

C

Smith Company reported pretax book income of $400,000 in 2011. Included in the computation were favorable temporary differences of $50,000, unfavorable temporary differences of $20,000, and favorable permanent differences of $40,000. Book equivalent of taxable income is:
A. $440,000
B. $400,000
C. $360,000
D. $330,000

D

Marlin Corporation reported pretax book income of $1,000,000 in 2011. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by
$100,000. Finally, the Company subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Book equivalent of taxable income is:
A. $1,125,000
B. $1,110,000
C. $1,015,000
D. $985,000

D

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%. The Company'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

C

Lynch Company had a net deferred tax asset of $68,000 at the beginning of the year, representing a
net taxable temporary difference of $200,000. During the year, Lynch reported pretax book income of
$800,000. Included in the computation were favorable temporary differences of $20,000 and unfavorable temporary differences of $50,000. During the year, the company's tax rate decreased from 34% to 30%. The Company'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 $1,000
D. Net deferred tax expense of $1,000

D

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.

B

Which of the following statements best describes the ASC 740 process for evaluating a company's uncertain tax positions?
A. ASC 740 requires a company to complete a two-step analysis every time it evaluates its uncertain tax positions.
B ASC 740 requires a company to complete step 2 (recognition) in its evaluation of its uncertain tax
. positions only if it is more-likely-than-not that that its tax position will be sustained on its merits.
C ASC 740 allows a company to take into account the probability of audit by a tax authority in step 1
. (measurement) in its evaluation of its uncertain tax positions.
D ASC 740 allows a company to record a tax benefit from an uncertain tax position only if it is probable
. the benefit will be sustained on audit by a tax authority.

B

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.

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