Question 1

Betz Corporation's income before taxes is $725,000 and its tax rate is 40%.Included in this amount is $50,000 in municipal bond interest and $15,000 in officers' life insurance.There are no other book-tax differences.Prepare the journal entry to record income tax expense and a reconciliation of the statutory tax rate to the effective tax rate.

Accepted Answer

The answer of Betz Corporation's income before taxes is $725,000...

Question 2

When a company depreciates a fixed asset at a faster rate for tax purposes than book purposes,this creates a ________.

Accepted Answer

When a company depreciates a fixed asset at a faster rate for tax purposes, it reduces its taxable income in the early years. However, since the asset is being depreciated at a slower rate for book purposes, the company will have to pay higher taxes in the future when the asset is fully depreciated. This creates a deferred tax liability.

Question 3

Refer to Kravitz Corporation.What is Kravitz' effective income tax rate?

Accepted Answer

In the Kravitz Corporation's income statement, we can observe that the income tax expense is $2,932, and the income before taxes is $8,908. Thus, the effective income tax rate for Kravitz is ($2,932 / $8,908) x 100 = 32.9%. The correct answer is option A.

Question 4

Piper Inc.'s income before taxes is $550,000 and its tax rate is 40%.Piper included $30,000 of interest from municipal bonds in the $550,000.There are no other book-tax differences.Prepare the journal entry to record income tax expense and a reconciliation of the statutory tax rate to the effective tax rate.

Accepted Answer

The answer of Piper Inc.'s income before taxes is $550,000...

Question 5

Refer to Kravitz Corporation.What is Kravitz' taxable income?

Accepted Answer

The correct taxable income for Kravitz Corporation is $800,000, as per the given options.

Question 6

Under U.S.GAAP,companies generally use a balance-sheet approach to account for temporary differences between book and tax treatment of transactions.

Accepted Answer

This statement is true. Temporary differences are differences between the carrying amount of an asset or liability in the financial statements and its tax basis. Under U.S. GAAP, companies generally use a balance-sheet approach to account for these temporary differences, which involves creating deferred tax assets or liabilities on the balance sheet.

Question 7

Refer to Kraviz Corporation.What is the net amount of Kravitz' book-tax difference?

Accepted Answer

The net amount of Kravitz's book-tax difference is that the book income is $50,000 greater than the taxable income.

Question 8

Gallagher Corporation's book income before taxes is $600,000 and its tax rate is 35%.Included in the income before taxes is $50,000 in fines and penalties.There are no other book-tax differences.Prepare the journal entry to record income tax expense and a reconciliation of the statutory tax rate to the effective tax rate.

Accepted Answer

The answer of Gallagher Corporation's book income before taxes is...

Question 9

A deferred tax asset represents a future reduction in income taxes payable.

Accepted Answer

A deferred tax asset arises when a company overpays taxes in the current period and will be able to reduce its tax payments in the future. This results in a future reduction in income taxes payable. Therefore, the statement is true.

Question 10

Purrfect Pet Industries' income before taxes is $800,000 and its tax rate is 40%.Purrfect Pet included $50,000 of fully deductible inter-corporate dividends received in the $800,000.There are no other book-tax differences.What is the income tax liability for Purrfect Pet?

Accepted Answer

The answer of Purrfect Pet Industries' income before taxes is...

Question 11

Under U.S.GAAP,if a firm writes down inventory for obsolescence,which of the following is created?

Accepted Answer

The answer of Under U.S.GAAP,if a firm writes down inventory...

Question 12

Temporary differences cause the effective income tax rate to vary from the statutory rate.

Accepted Answer

The answer of Temporary differences cause the effective income tax...

Question 13

Blue Company's income before taxes is $400,000 and its tax rate is 40%.Blue included $40,000 of fines and penalties in the $400,000.There are no other book-tax differences.What is the effective tax rate for Blue Company?

Accepted Answer

The answer of Blue Company's income before taxes is $400,000...

Question 14

A deferred tax asset exists when ________.

Accepted Answer

The answer of A deferred tax asset exists when ________.
...

Question 15

Danio Inc.'s income before taxes is $350,000 and its tax rate is 30%.Danio included $20,000 of interest from municipal bonds in the $350,000.There are no other book-tax differences.What is the effective tax rate for Danio Inc.?

Accepted Answer

The municipal bond interest is tax-exempt, which means it should not be included in taxable income. Therefore, Danio's taxable income for tax purposes should be $330,000 ($350,000 - $20,000). The tax liability at a 30% rate would be $99,000 ($330,000 x 0.30). The effective tax rate would be $99,000 / $350,000 = 28%.

Question 16

All of the following are examples of temporary book-tax differences except ________.

Accepted Answer

Municipal bond interest is typically tax-exempt, so there would be no temporary book-tax difference. The other options can create temporary differences, as the timing or amount of expenses or revenues recognized for financial accounting purposes may differ from those recognized for tax purposes.

Question 17

Under U.S.GAAP,companies generally use a cash flow approach to account for temporary differences between book and tax treatment of transactions.

Accepted Answer

The answer of Under U.S.GAAP,companies generally use a cash flow...

Question 18

Temporary differences between the book and tax treatment of transactions create deferred tax assets or deferred tax liabilities.

Accepted Answer

This statement is true. Temporary differences arise when there is a discrepancy between the amount of revenue or expenses that are recognized on the financial statements and the tax returns. This results in either deferred tax assets or deferred tax liabilities, which reflect the future tax consequences of these temporary differences.

Question 19

When a company pays taxes that were previously recorded as a deferred tax liability,the temporary difference ________.

Accepted Answer

When a company pays taxes that were previously recorded as a deferred tax liability, it means that the temporary difference that caused the deferred tax liability has been resolved or reversed. Therefore, the correct answer is B, which means that the temporary difference reverses.

Question 20

All of the following are examples of temporary book-tax differences except ________.

Accepted Answer

Payment of premiums for life insurance results in a permanent book-tax difference, as the premiums are not deductible for tax purposes but rather, reduce the book value of the asset. Contingent liabilities, depreciation, and product warranty costs are examples of temporary book-tax differences, as they result in differences between book and taxable income in the current period but are expected to reverse in a later period.

Quiz 19: Accounting for Income Taxes

When a company depreciates a fixed asset at a faster rate for tax purposes than book purposes,this creates a ________.

Refer to Kravitz Corporation.What is Kravitz' effective income tax rate?

Refer to Kravitz Corporation.What is Kravitz' taxable income?

Under U.S.GAAP,companies generally use a balance-sheet approach to account for temporary differences between book and tax treatment of transactions.

Refer to Kraviz Corporation.What is the net amount of Kravitz' book-tax difference?

A deferred tax asset represents a future reduction in income taxes payable.

Purrfect Pet Industries' income before taxes is $800,000 and its tax rate is 40%.Purrfect Pet included $50,000 of fully deductible inter-corporate dividends received in the $800,000.There are no other book-tax differences.What is the income tax liability for Purrfect Pet?

Under U.S.GAAP,if a firm writes down inventory for obsolescence,which of the following is created?

Temporary differences cause the effective income tax rate to vary from the statutory rate.

Blue Company's income before taxes is $400,000 and its tax rate is 40%.Blue included $40,000 of fines and penalties in the $400,000.There are no other book-tax differences.What is the effective tax rate for Blue Company?

A deferred tax asset exists when ________.

Danio Inc.'s income before taxes is $350,000 and its tax rate is 30%.Danio included $20,000 of interest from municipal bonds in the $350,000.There are no other book-tax differences.What is the effective tax rate for Danio Inc.?

All of the following are examples of temporary book-tax differences except ________.

Under U.S.GAAP,companies generally use a cash flow approach to account for temporary differences between book and tax treatment of transactions.

Temporary differences between the book and tax treatment of transactions create deferred tax assets or deferred tax liabilities.

When a company pays taxes that were previously recorded as a deferred tax liability,the temporary difference ________.

All of the following are examples of temporary book-tax differences except ________.