Taxes Mastery Quiz

A difference between financial reporting and tax reporting due to tax-exempt interest earned on municipal bonds will create which of the following?

Difference in effective tax rate

A difference between financial reporting and tax reporting due to rental payments received in advance will create which of the following?

Deferred tax asset

A difference between financial reporting and tax reporting due to fines paid to the SEC for late filing will create which of the following?

Difference in effective tax rate

A difference between financial reporting and tax reporting due to warranty liabilities will create which of the following?

Deferred tax asset

A difference between financial reporting and tax reporting due to depreciation expense recorded for financial reporting and MACRS reported for taxes will create which of the following?

Deferred tax liability

Maple Company’s taxable income for Year 1 was $10,000. In addition, Maple paid a fine for late filing with the SEC in the amount of $350 and received interest on a tax-exempt municipal bond investment of $225. What is the amount of Maple’s net income before taxes for Year 1?

$9,875

Elm Company's Net Income before Taxes for Year 1 was $12,000. Included in that amount are fines that Elm paid for late filing with the SEC in the amount of $200 and interest on tax-exempt municipal bond investments in the amount of $150. What is the amount of Elm's taxable income for Year 1?

$12,050

Willow Company had taxable income of $12,000, taxes payable of $2,400, income before taxes of $10,000, and income tax expense of $1,800.

What is Willow's effective tax rate?

18%

Elm Company had taxable income of $12,000, taxes payable of $3,600, income before taxes of $10,000, and income tax expense of $2,400.

What is Elm's effective tax rate?

24%

In January of Year 1, Chestnut Company received a payment in the amount of $10,000 for services to be provided evenly over four years. At the end of Year 1, Chestnut recorded revenue of $2,500. Chestnut's tax rate is 20%. At the end of Year 1, what is the amount of temporary difference that arises from these events?

$7,500

In January of Year 1, Walnut Company received a payment in the amount of $12,000 for services to be provided evenly over four years, so that Walnut will record revenue for financial accounting of $3,000 in each of Years 1 through 4. For Year 2, Walnut's taxable income was $110,000.

Walnut's tax rate is 20%. What amount of income tax expense will Walnut report for Year 2?

$21,400

In January of Year 1, Oak Company received a payment in the amount of $15,000 for services to be provided evenly over three years. At the end of Year 1, Oak recorded revenue of $5,000. Oak's tax rate is 20%. What is the amount of the deferred tax asset that Oak will report on the Year 1 balance sheet?

$2,000

At the beginning of Year 1, Carrots Company purchased a equipment with a cost of $2,000. The equipment will be depreciated financial reporting purposes over 4 years on a straight-line basis, assuming no salvage,value. Carrots will use MACRS with a three-year class life for tax purposes, so the deductions on the tax return will be the following:

Year 1: 666.00

Year 2: 889.00

Year 3: 296.00

Year 4: 149.00

The tax rate for all years is 20%, and Carrots has no other book tax differences. What will be the amount of the deferred tax liability that Carrot reports on its end of Year 2 balance sheet, rounded to whole dollars?

111.00

At the end of Year 1, Grapefruit Storage Company received an advance rental payment in the amount of $450 for three years' rental of warehouse space. The rent revenue will be recognized for financial reporting evenly over the next three years. The tax rate was 30% for Years 1 and 2, and during Year 2, the tax rate was changed to 20% for all future years beginning in Year 3. What is the balance in the deferred tax account related to this transaction at the end of Year 2?

90.00

At the beginning of Year 1, Celery Company purchased a equipment with a cost of $1,000. The equipment will be depreciated financial reporting purposes over 4 years on a straight-line basis, assuming no salvage value. Celery will use MACRS with a three-year class life for tax purposes, so the deductions on the tax return will be the following:

Year 1: 333.00

Year 2: 445.00

Year 3: 148.00

Year 4: 74.00

The tax rate for Years 1 and 2 is 20%, and during Year 2, the tax rate was changed to 30% for all future years beginning in Year 3. Celery has no other book tax differences. What will be the amount of the deferred tax liability that Celery reports on its end of Year 2 balance sheet?

83.40

During Year 1, Nectarine Company reported net income before taxes of $630, and taxable income of $660. The difference was due to the following three book-tax differences:

I. fines for late filings with the SEC

warranty expense that differed from payments for warranties

depreciation differences between financial reporting and tax deductions for depreciation

The deferred tax liability increased by $6 and the deferred tax asset by $8. Nectarine's tax rate is 20%.

What amount of income tax expense will Nectarine record for Year 1?

130

During Year 1, Lambert Company reported a net loss of $600 in its financial statements. The net loss for year 1 included the effects of depreciation expense of $70. MACRS depreciation for year 1 was $120, which is an increase in the temporary difference of $50. Lambert has no other book-tax differences, and the Year 1 tax rate is 30%. Lambert is not in an industry that is eligible for the carry-back option. What is the amount of net operating loss that Lambert will carry forward from Year 1?

650

During Year 1, Perry Company reported a net loss of $800 in its financial statements. The net loss for year 1 included the effects of depreciation expense of $50. MACRS depreciation for year 1 was $80, which is an increase in the temporary difference of $30. Perry has no other book-tax differences, and the Year 1 tax rate is 30%. Perry is not in an industry that is eligible for the carry-back option. What is the amount of deferred tax asset from the carry-forward that Perry will record in Year 1?

249

Furing Year 1, Lambert Company reported a net loss of $600 in its financial statements. The net loss for year 1 included the effects of depreciation expense of $70. MACRS depreciation for year 1 was $120, which is an increase in the temporary difference of $50. Lambert has no other book-tax differences, and the Year 1 tax rate is 30%. Lambert is not in an industry that is eligible for the carry-back option. What is the amount of tax loss benefit that Lambert will record in Year 1?

DY 180

0216

165

buring Year 1, the tax return of Asimov Company showed a net operating loss of $800. The enacted tax rate for Year 1 and all future years is 30%, and Asimov is not in an industry that is eligible for the carry-back option. During Year 2, Asimov's taxable income before considering any benefit of carryforward amounts was $150. Asimov has no other book-tax differences. What will be the amount of Asimov's Year 2 income tax payable?

9

During Year 1, the tax return of Asimov Company showed a net operating loss of $800. The enacted tax rate for Year 1 and all future years is 30%, and Asimov is not in an industry that is eligible for the carry-back option. During Year 2, Asimov's taxable income before considering any benefit of carryforward amounts was $150. Asimov has no other book-tax differences. What will be the balance in the deferred tax asset on Asimov's Year 2 balance sheet?

204

During the current year, Collins Company reported a net operating loss of $1,200 on its tax return and will carry forward that amount. Collins's tax rate is 20% for the current year and all future years. Collins is not in an industry that is eligible for the carry-back option, and expects to realize only 70% of the carryforward. What is the amount of the valuation allowance Collins will record?

72

During the current year, Collins Company reported a net operating loss of $1,200 on its tax return. The company's records also show a $25 reversal of part of a deferred tax liability. Collins's tax rate is 20% for the current year and all future years. Collins is not in an industry that is eligible for the carry-back option, and expects to realize only 60% of the carryforward. What amount of income tax benefit will Collins report in the current year?

169

Haydn Company has evaluated its tax return and has identified an uncertain tax position for a deduction in the amount of $500. The company has consulted a tax attorney, who believes that there is a 60% chance that the position will be upheld in court. The attorney expressed the opinion that the probabilities of allowed deductions in settlement negotiations are a 25% chance of the full amount of $500, a 25% chance of $400, a 20% chance of $350, a 10% chance of $200, a 10% chance of $100, and a 10% of $0. Haydn's tax rate is 20%. What amount of liability will Haydn record for financial accounting associated with this tax position?

30

Haydn Company has evaluated its tax return and has identified an uncertain tax position for a deduction in the amount of $500. The company has consulted a tax attorney, who believes that there is a 40% chance that the position will be upheld in court, but that some amount will be allowed in a settlement. The attorney expressed the opinion that the probabilities of allowed deductions in settlement negotiations are a 25% chance of the full amount of $500, a 25% chance of $400, a 20% chance of $350, a 10% chance of $200, a 10% chance of $100, and a 10% of $0. Haydn's tax rate is 20%. What amount of liability will Haydn record for financial accounting associated with this tax position?

100