ACC 305 Week 4 Quiz 03 Chapter 19

ACC 305 Week 4 Quiz 03 Chapter 19
Multiple Choice Question 59

Hopkins Co. at the end of 2014, its first year of operations, prepared reconciliation between
pretax financial income and taxable income as follows:
Pretax financial income
Estimated litigation expense
Extra depreciation for taxes
Taxable income
$1,500,000
2,000,000
(3,000,000)
$ 500,000
The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is expected
to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each
of the next three years. The income tax rate is 30% for all years.
The deferred tax asset to be recognized is
o
o
o
o
$450,000 current.
$600,000 current.
$150,000 current.
$300,000 current.

Operating income and tax rates for C.J. Companys first three years of operations were as
follows:
Income
2014
2015
2016
$300,000
($750,000)
$1,260,000
Enacted tax
rate
35%
30%
40%
Assuming that C.J. Company opts only to carryforward its 2015 NOL, what is the amount
of deferred tax asset or liability that C.J. Company would report on its December 31, 2015
balance sheet?
Amount
o
o
o
o
$225,000
$262,500
$300,000
$225,000
Deferred tax asset or

liability
Deferred tax liability
Deferred tax liability
Deferred tax asset
Deferred tax asset
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Deferred tax amounts that are related to specific assets or liabilities should be classified as
current or noncurrent based on
o
o
o
o
The length of time the deferred tax amounts will generate future tax deferral benefits.
Their debit or credit balance.
The classification of the related asset or liability.
Their expected reversal dates.

Kraft Company made the following journal entry in late 2014 for rent on property it leases
to Danford Corporation.
Cash
Unearned Rent Revenue
120,000
90,000
The payment represents rent for the years 2015 and 2016, the period covered by the lease.
Kraft Company is a cash basis taxpayer. Kraft has income tax payable of $184,000 at the
end of 2014, and its tax rate is 35%.
What amount of income tax expense should Kraft Company report at the end of 2014?
o
o
o
o
$142,000
$106,000
$226,000
$163,000

Munoz Corp.'s books showed pretax financial income of $2,700,000 for the year ended
December 31, 2015. In the computation of federal income taxes, the following data were
considered:
Gain on an involuntary conversion
(Munoz has elected to replace the property within the statutory
period using total proceeds.)
Depreciation deducted for tax purposes in excess of depreciation
deducted for book purposes
Federal estimated tax payments, 2015
$1,170,000
180,000
225,000
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Enacted federal tax rate, 2015
30%
What amount should Munoz report as its current federal income tax liability on its
December 31, 2015 balance sheet?
o
o
o
o
$234,000
$180,000
$405,000
$459,000

Which of the following will not result in a temporary difference?
o
o
o
o
Advance rental receipts

Installment sales
All of these will result in a temporary difference
Product warranty liabilities

With regard to uncertain tax positions, the FASB requires that companies recognize a tax
benefit when
o Any of the above exist
o It is probable and can be reasonably estimated
o There is at least a 51% probability that the uncertain tax position will be approvedby the
taxing authorities
o It is more likely than not that the tax position will be sustained upon audit

Lyons Company deducts insurance expense of $126,000 for tax purposes in 2014, but the
expense is not yet recognized for accounting purposes. In 2015, 2016, and 2017, no
insurance expense will be deducted for tax purposes, but $42,000 of insurance expense will
be reported for accounting purposes in each of these years. Lyons Company has a tax rate
of 40% and income taxes payable of $108,000 at the end of 2014. There were no deferred
taxes at the beginning of 2014.
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Assuming that income taxes payable for 2015 is $144,000, the income tax expense for 2015
would be what amount?
o
o
o
o
$160,800
$127,200
$144,000
$194,400

A deferred tax liability is classified on the balance sheet as either a current or a noncurrent
liability. The current amount of a deferred tax liability should generally be
o The net deferred tax consequences of temporary differences that will result in net taxable
amounts during the next year
o Based on the classification of the related asset or liability for financial reporting purposes
o Totally eliminated from the financial statements if the amount is related to a noncurrent
asset
o The total of all deferred tax consequences that are not expected to reverse in the operating
period or one year, whichever is greater

On January 1, 2015, Gore, Inc. purchased a machine for $1,350,000 which will be
depreciated $135,000 per year for financial statement reporting purposes. For income tax
reporting, Gore elected to expense $150,000 and to use straight-line depreciation which will
allow a cost recovery deduction of $120,000 for 2015. Assume a present and future enacted
income tax rate of 30%. What amount should be added to Gore's deferred income tax
liability for this temporary difference at December 31, 2015?
o
o
o
o
$81,000
$40,500
$45,000
$36,000

In 2014, Krause Company accrued, for financial statement reporting, estimated losses on
disposal of unused plant facilities of $2,400,000. The facilities were sold in March 2015 and
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a $2,400,000 loss was recognized for tax purposes. Also in 2014, Krause paid $100,000 in
premiums for a two-year life insurance policy in which the company was the beneficiary.
Assuming that the enacted tax rate is 30% in both 2014 and 2015, and that Krause paid
$780,000 in income taxes in 2014, the amount reported as net deferred income taxes on
Krause's balance sheet at December 31, 2014, should be a
o
o
o
o
$680,000 asset
$360,000 asset
$720,000 asset
$360,000 liability

At December 31, 2014 Raymond Corporation reported a deferred tax liability of $180,000
which was attributable to a taxable type temporary difference of $600,000. The temporary
difference is scheduled to reverse in 2018. During 2015, a new tax law increased the
corporate tax rate from 30% to 40%. Raymond should record this change by debiting
o
o
o
o
Retained Earnings for $60,000

Retained Earnings for $18,000
Income Tax Expense for $18,000
Income Tax Expense for $60,000

Cross Company reported the following results for the year ended December 31, 2014, its
first year of operations:
Income (per books before income taxes)
Taxable income
2014
$1,500,000
2,400,000
The disparity between book income and taxable income is attributable to a temporary
difference which will reverse in 2015. What should Cross record as a net deferred tax asset
or liability for the year ended December 31, 2014, assuming that the enacted tax rates in
effect are 40% in 2014 and 35% in 2015?
o $360,000 deferred tax asset
o $315,000 deferred tax asset
o $315,000 deferred tax liability
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o $360,000 deferred tax liability

A company uses the equity method to account for an investment for financial reporting
purposes. This would result in what type of difference and in what type of deferred income
tax?
Type of Difference
o Temporary
o Permanent
o Permanent
o Temporary
Deferred Tax
Liability
Asset
Liability
Asset

At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a deferred
tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and the enacted
tax rate is 40%. The following items are included in Elephants pre-tax income:
Interest income from municipal bonds
Accrued warranty costs, estimated to be paid in 2016
Operating loss carryforward
Installment sales revenue, will be collected in 2016
Prepaid rent expense, will be used in 2016
$ 60,000
$130,000
$ 95,000
$ 65,000
$ 30,000
Which of the following is required to adjust Elephant, Inc.s deferred tax asset to its correct
balance at December 31, 2015?
o A credit of $38,000
o A debit of $38,000
o A debit of $42,000
o A credit of $52,000
Page 6 of 6

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ACC 305 Week 4 Quiz 03 Chapter 19

Multiple Choice Question 59

Multiple Choice Question 94

Deferred tax asset or