FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 3: Taxes on the Financial Statements

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Essay

Review LaterAdd Note

Review Later

A corporation's taxable income almost never is the same as its GAAP financial accounting income.Explain why this occurs.Use the terms permanent and temporary book-tax differences in you answer.Give at least two examples of each type of book-tax difference.

Correct Answer

verified

Temporary differences are caused by inco...

View Answer

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

Healy,Inc.,reports an effective tax rate in its income tax footnote of 14%.The only reconciling item with regard to the hypothetical tax at 35% is a valuation allowance reversal of negative 21%.Which of the following statements is true concerning comparing Healy,Inc.'s effective tax rate with its competitors,all of whom have an effective tax rate between 32 and 36%?

A) Healy Inc.,is managing its tax burden in a more efficient manner than its competitors.
B) Healy Inc.,structural effective tax rate is actually quite close to its competitors.
C) Healy Inc.,earned more cash profits because of its lower effective tax rate.
D) Healy Inc.,is likely to be engaged in tax shelter activities.

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

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

Phyllis,Inc.,earns book net income before tax of $600,000.Phyllis puts into service a depreciable asset this year,and first year tax depreciation exceeds book depreciation by $120,000.Phyllis has recorded no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 35%,what is Phyllis's total income tax expense reported on its GAAP financial statements?

Amelia,Inc.,is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year.Assume a 34% corporate tax rate and no valuation allowance. Amelia,Inc.'s,gross deferred tax assets and liabilities at the beginning of Amelia's year are listed below. Amelia,Inc.'s,book income before tax is $25,200.Amelia records two permanent book-tax differences.It earned $1,000 in tax-exempt municipal bond interest and $1,840 in nondeductible meals and entertainment expense.Provide the journal entry to record Amelia's current tax expense.

Which of the following taxes are included in the total income tax expense of a corporation as reported on its GAAP financial statements?

The operations of 80% or more owned domestic subsidiaries can be included in the parent corporation's consolidated tax return,if a proper election is made.

Wilde,Inc.,reported the following results for the current year. Determine Wilde's taxable income for the current year.Identify any temporary or permanent book-tax differences.

Black,Inc.,is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year.Assume a 35% corporate tax rate and no valuation allowance.

At the beginning of the year,the balance sheet of Schrader,Inc.,shows a $500,000 deferred tax asset relating to a net operating loss carryforward,offset by a $90,000 valuation allowance.At the end of the year,Schrader's auditors agree to release $20,000 of the allowance.Develop the journal entry to record this change in the valuation allowance.

In the "rate reconciliation" of GAAP tax footnotes,temporary book-tax differences are reconciled between book income as if taxed at U.S.tax rates and the actual book income tax expense.

South,Inc.,earns book net income before tax of $400,000 in 2013.South acquires a depreciable asset in 2013,and first year tax depreciation exceeds book depreciation by $50,000.At the end of 2013,South's deferred tax liability account balance is $17,500.In 2014,South earns $500,000 book net income before tax,and its book depreciation exceeds tax depreciation by $20,000.South records no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 35%,what is South's current income tax expense reported on its GAAP financial statements for 2014?

How are deferred tax liabilities and assets categorized on the balance sheet?

PaintCo Inc.,a domestic corporation,owns 100% of BrushCo Ltd.,an Irish corporation.Assume that the U.S.corporate tax rate is 35% and the Irish rate is 15%.PaintCo is permanently reinvesting BrushCo's earnings outside the United States under ASC 740-30 (APB 23).The corporations' book income,permanent and temporary book-tax differences,and current tax expense are reported as follows.Determine PaintCo's total tax expense reported on its GAAP financial statements,its current tax expense (benefit),and its deferred tax expense (benefit).

Placard,a multinational corporation based in the U.S.,has used ASC 740-30 (APB 23)to avoid reporting any U.S.deferred tax expense on $50 million of the earnings of its foreign subsidiaries.All of these subsidiaries operate in countries with lower tax rates than those of the U.S.When the profits eventually are repatriated,how is Placard's effective tax rate affected on its GAAP financial statements?

If a corporation has no operations outside the U.S.,its GAAP book and taxable income are identical.

Amelia,Inc.,is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year.Assume a 34% corporate tax rate and no valuation allowance. Amelia,Inc.'s,gross deferred tax assets and liabilities at the beginning of Amelia's year are listed below. Amelia,Inc.'s,book income before tax is $25,200.Amelia records two permanent book-tax differences.It earned $1,000 in tax-exempt municipal bond interest and $1,840 in nondeductible meals and entertainment expense.What is Amelia's total provision for income tax expense reported on its financial statement and its book net income after tax?

ASC 740 (FIN 48)is the GAAP equivalent of the Form 1120 Schedule UTP.

A deferred tax asset is the expected future tax benefit (savings)associated with income reported in the current year GAAP financial statements.

The current tax expense reported on the GAAP financial statements generally represents the taxes actually payable to domestic or foreign governmental authorities.

Qute,Inc.,earns book net income before tax of $500,000.In computing its book income,Qute deducts $50,000 more in warranty expense for book purposes than is allowed for tax purposes.Qute records no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 35% and no valuation allowance is required,what is Qute's total income tax expense reported on its GAAP financial statements?