Question 1

Which of the following results in a deferred tax asset?
A)Revenue or gains are recognized earlier for book purposes than for tax purposes.
B)Operating loss or tax credit carryforwards exist.
C)Tax basis of an asset is less than its book.
D)Expenses are deductible earlier for tax purposes than for book purposes.

Accepted Answer

Operating loss or tax credit carryforwards create future tax benefits that can be applied against future taxable income, resulting in a deferred tax asset. The other options listed may result in deferred tax liabilities.

Question 2

Bishop Corporation reports taxable income of $700,000 on its tax return.Given the following information from the corporation's records,determine Bishop's net income per its financial accounting records. $$\begin{array} {| l | r | } 
\hline \text { Deduction for federal income taxes per books } & \$ 240,000 \
\hline \text { Depreciation claimed on the tax return } & 135,00 \
\hline \text { Depreciation reported on the financial accounting books } & 75,000 \
\hline \text { Life insurance proceeds on death of a corporate officer } & 100,000 \
\hline
\end{array}$$
A)$520,000
B)$620,000
C)$660,000
D)$560,000

Accepted Answer

The answer of Bishop Corporation reports taxable income of $700,000...

Question 3

Which of the following types of evidence indicate that a valuation allowance is needed to reduce the deferred tax asset?
A)history of profits
B)excess of appreciated asset values over basis
C)existing contracts or sales backlogs,which will generate significant future income
D)short carryback or carryover periods

Accepted Answer

Short carryback or carryover periods indicate that there may not be enough future taxable income to utilize the deferred tax asset, thus requiring a valuation allowance. A history of profits, excess of appreciated asset values over basis, and existing contracts or sales backlogs may support the realizability of the deferred tax asset and not necessarily indicate the need for a valuation allowance.

Question 4

Identify which of the following statements is true.
A)Form 1120 Schedule L contains the corporation's income statement.
B)Schedule M-1 (Form 1120)is an analysis of the corporation's retained earnings.
C)Organizational expense amortized over fifteen years for purposes of determining taxable income results in an upper adjustment in the initial years to book income on the Schedule M-1 when the expense is being amortized over ten years for book income purposes.
D)All of the above are false.

Accepted Answer

The answer of Identify which of the following statements is...

Question 5

Which of the following items will not create a deferred tax liability?
A)Revenues or gains are recognized earlier for book purposes than for tax purposes.
B)Expenses or losses are deductible earlier for tax purposes than for book purposes.
C)Tax basis of an asset is less than its book basis.
D)Operating loss or tax credit carryforwards exist.

Accepted Answer

Operating loss or tax credit carryforwards do not create a deferred tax liability as they represent potential future tax benefits and not current or future tax liabilities. Choices A, B, and C create timing differences between book and tax which lead to a deferred tax liability.

Question 6

Winter Corporation's taxable income is $500,000.In addition,Winter has the following items: $$\begin{array} { | l | r | } 
\hline \text { Depreciation for tax purposes } & \$ 60,000 \
\hline \text { Depreciation for financial accounting } & \
 \text { purposes } & 40,000 \
\hline \text { Net capital loss } & ( 2,000 ) \
\hline \text { Interest on loan to acquire tax-exempt } &  \
 \text { securities } &7,000 \
\hline
\end{array}$$ What is Winter's financial accounting income?
A)$511,000
B)$513,000
C)$518,000
D)$520,000

Accepted Answer

Depreciation is added back to taxable income to arrive at financial accounting income. Net capital loss is not deductible for tax purposes, but is deductible for financial accounting purposes. Interest on tax-exempt securities is not included in taxable income, but is included in financial accounting income.$500,000 + $60,000 - $2,000 + $7,000 = $565,000

Question 7

Which of the following statements is correct?
A)Deferred tax assets/liabilities are always classified as current on the balance sheet.
B)The classification of deferred tax assets/liabilities depends on whether the related asset is current or noncurrent.
C)Deferred tax assets are classified based on their expected reversal dates.
D)Deferred tax assets/liabilities are classified as noncurrent on the balance sheet.

Accepted Answer

The answer of Which of the following statements is correct?
A)Deferred...

Question 8

Which of the following items is a permanent difference between taxable and financial accounting income?
A)depreciation
B)dividends-received deduction
C)bad debts
D)net capital loss

Accepted Answer

The answer of Which of the following items is a...

Question 9

Deferred tax liabilities occur when expenses are deductible for book purposes before tax purposes.

Accepted Answer

The answer of Deferred tax liabilities occur when expenses are...

Question 10

Identify which of the following statements is false.
A)A corporation must file a tax return annually.
B)A corporation can obtain an automatic six-month extension of time to file its tax return.
C)The IRS will permit an extension of time to file a corporate return beyond the original due date only when the corporation's delay is reasonable.
D)The IRS can rescind the extension period.

Accepted Answer

The IRS will generally grant a six-month extension of time to file a corporate tax return upon request, regardless of the reason for the delay.

Question 11

Which of the following items is a temporary difference between tax income and financial accounting income?
A)production activities deduction
B)proceeds on life insurance on a key executive
C)dividends-received deduction
D)depreciation

Accepted Answer

Depreciation results in a temporary difference because the depreciation expense reported on the financial statements may be different than the tax depreciation reported on the tax return. This difference results in deferred tax liabilities or assets that will reverse in the future. The other 3 options listed are permanent differences, which means they do not result in deferred tax liabilities or assets.

Question 12

Which of the following items indicate that a company does not need a valuation allowance?
A)existing sales contracts that will produce sufficient income to realize the deferred tax asset
B)excess of appreciated asset value over tax basis sufficient to realize the deferred tax asset
C)a strong history of earnings without considering the deferred tax asset
D)All of the above are correct.

Accepted Answer

All three options would indicate that a company does not need a valuation allowance for their deferred tax asset. Existing sales contracts generating enough income, appreciated asset value exceeding tax basis, and a strong earnings history all suggest that the deferred tax asset is more likely than not to be realized in the future, and therefore, no valuation allowance is necessary.

Question 13

A deferred tax asset indicates that a firm will realize the tax benefit of an event sometime in the future.

Accepted Answer

A deferred tax asset represents the tax benefit that a company will receive in the future as a result of events that have already occurred. These assets arise due to temporary differences between the carrying amount of an asset or liability and its tax basis. Once these temporary differences reverse, the company will be able to utilize the deferred tax asset to reduce its future tax obligations.

Question 14

Dreyfuss Corporation reports the following items: Unappropriated retained earnings,beginning of year: $800,000
Net income: 700,000
Federal income tax refund for last year taken directly to retained earnings: 50,000
Cash dividends paid this year: 500,000
The unappropriated retained earnings at year-end are
A)$1,000,000.
B)$1,050,000.
C)$1,500,000.
D)$2,050,030.

Accepted Answer

Starting with the beginning balance of $800,000, we add the net income of $700,000 and the federal income tax refund of $50,000, giving us a total of $1,550,000. We then subtract the dividends paid of $500,000, giving us a final unappropriated retained earnings balance of $1,050,000.

Quiz 3: The Corporate Income Tax

Which of the following results in a deferred tax asset?

Which of the following types of evidence indicate that a valuation allowance is needed to reduce the deferred tax asset?

Identify which of the following statements is true.

Which of the following items will not create a deferred tax liability?

Which of the following statements is correct?

Which of the following items is a permanent difference between taxable and financial accounting income?

Deferred tax liabilities occur when expenses are deductible for book purposes before tax purposes.

Identify which of the following statements is false.

Which of the following items is a temporary difference between tax income and financial accounting income?

Which of the following items indicate that a company does not need a valuation allowance?

A deferred tax asset indicates that a firm will realize the tax benefit of an event sometime in the future.