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Income Tax Fundamentals 2023 41st Edition TEST BANK by Gerald E. Whittenburg, Steven Gill
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Income Tax Fundamentals 2023 41st Edition TEST BANK by Gerald E. Whittenburg, Steven Gill
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TEST BANK for Income Tax Fundamentals 2024, 42nd Edition by Gerald Whittenburg; ISBN: 9780357900932, All 12 Chapters Covered, Verified Latest Edition
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Income Tax Fundamentals 2023 41st Edition TEST BANK by Gerald E. Whittenburg, Steven Gill
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Income Tax Fundamentals 2023 41st Edition TEST BANK by Gerald E. Whittenburg, Steven Gill
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Income Tax Fundamentals 2023 41st Edition TEST BANKby Gerald E. Whittenburg, Steven Gill
Paxton Inc.'s reconciliation between financial statement and taxable income for year
6 follows.
Pretax financial income $750,000
Permanent difference (25,000)
725,000
Temp difference: depreciation (60,000)
Temp difference: disallowed warranty expense 50,000
Taxable income $715,000
The enacted tax rate was 30% for year 6 and 35% for years thereafter. Paxton
estimates that 10% of any deferred tax asset will never be realized. In its December
31, year 6 balance sheet, what amount would Paxton report as deferred income tax
asset?
A $17,500
B $21,000
C $15,750
D $18,900 - ANSWER:C $15,750
A deferred tax asset is generated from a temporary difference that is classified as a
future deductible amount, computed using future tax rates. The warranty expense is
not deductible currently for tax purposes but will be in the future once the expense
is paid, although it is estimated that 10% will never be realized.
The deferred tax asset is computed as follows: (50,000 - 5,000) × 35% = $15,750
Which of the following items is not subject to the application of intra-period income
tax allocation?
I. Discontinued operations
II. Income from continuing operations
III. Operating income
A I, II, and III
B I only
C II only
D III only - ANSWER:D III only
Intra-period tax allocation is allocating income taxes to key components of the
income statement. Operating income is not subject to intra-period tax allocation.
Tax is deducted from Income from Continuing Operations and Income (Loss) from
Discontinued Operations is presented net of tax.
,Lion Co.'s income statement for its first year of operations shows pretax income of
$6,000,000. In addition, the following differences existed between Lion's tax return
and records:
Tax return Accounting records
Uncollectible accounts expense $220,000 $250,000
Depreciation expense 860,000 570,000
Tax-exempt interest revenue --- 50,000
Lion's current year tax rate is 30% and the enacted rate for future years is 40%. What
amount should Lion report as deferred tax expense in its income statement for the
year?
A $148,000
B $124,000
C $104,000
D $78,000 - ANSWER:C $104,000
Uncollectible accounts expense $220,000 $250,000 = 30k
Depreciation expense 860,000 570,000 = 290k
290-30= 260
The difference in uncollectible accounts expense between the tax return and the
accounting records would result is a $30,000 deferred tax asset. The difference in
depreciation expense between the tax return and the accounting records would
result in a $290,000 deferred tax liability. The difference in tax-exempt interest
revenue between the tax return and the accounting records results in no tax asset or
liability because the revenue was tax exempt. This results in a net future tax liability
of $260,000. The$260,000 times the future tax rate of 40% equals $104,000.Option
Bard Co., a calendar-year corporation, reported income before income tax expense
of $10,000 and income tax expense of $1,500 in its interim income statement for the
first quarter of the year. Bard had income before income tax expense of $20,000 for
the second quarter and an estimated effective annual rate of 25%. What amount
should Bard report as income tax expense in its interim income statement for the
second quarter?
A $3,500
B $5,000
C $6,000
D $7,500 - ANSWER:C $6,000
Ref Summary Amount ($)
a Q1 income 10,000
b Q2 income 20,000
c Total (a+b) 30,000
d Tax expense @25% on total Income 7,500
e Less: Tax expense Q1 (1,500)
f Tax expense Q2 (d+e) 6,000
,When accounting for income taxes, a temporary difference occurs in which of the
following scenarios?
A An item is included in the calculation of net income, but is neither taxable nor
deductible.
B An item is included in the calculation of net income in one year and in taxable
income in a different year.
C An item is no longer taxable due to a change in the tax law.
D The accrual method of accounting is used. - ANSWER:B An item is included in the
calculation of net income in one year and in taxable income in a different year.
Differences between book and taxable income resulting from temporary differences
are those which occur due to items which will reverse themselves in a matter of time
(timing difference). Thus, an item included in the calculation of net income in one
year and in taxable income in a different year would lead to a temporary difference.
Income tax expense or benefit for the year should be allocated among
# Discontinued operations Prior period adjustments
A Yes Yes
B Yes No
C No Yes
D No No - ANSWER:A Yes Yes
Income tax expense or benefit for the year shall be allocated among continuing
operations, discontinued operations, extraordinary items, and items charged or
credited directly to shareholders' equity' such as prior period adjustments, certain
changes in accounting principles, and changes in market values of investments in
marketable equity securities classified as noncurrent assets.
Generally, the manner of reporting the tax benefit of an operating loss carryforward
or carryback is determined by the source of the
# Income or loss
in the current year Operating loss carry forward
or taxes paid in a prior year
A Yes Yes
B Yes No
C No Yes
D No No - ANSWER:B Yes No
Except for certain areas such as business combinations and quasi-reorganizations,
the manner of reporting the tax benefits of an operating loss carryforward or
carryback is determined by the source of the income (or loss) in the current year and
not by the source of the operating loss carryforward or taxes paid in a prior year.
For example, the tax benefit of an operating loss carryforward reduces income tax
expense from continuing operations if the source of that tax benefit is from
continuing operations.
, Dunn Co.'s current year income statement reported $90,000 income before
provision for income taxes. To compute the provision for federal income taxes, the
following data are provided:
Rent received in advanced $16,000
Income from exempt municipal bonds 20,000
Depreciation deducted for income tax purposes in excess of
depreciation reported for financial statement purposes 10,000
Estimated tax payments 0
Enacted corporate income tax rate 21%
What amount of current federal income tax liability should be reported in Dunn's
December 31 balance sheet?
A $12,600
B $15,960
C $18,060
D $20,160 - ANSWER:B $15,960
To determine Dunn's current federal income tax liability, Dunn's pretax financial
income is adjusted to its taxable income; then, taxable income is multiplied by the
current year's enacted corporate income tax rate.
Pretax financial income $90,000
Rent received in advance 16,000
Income from municipal bonds, tax-exempt (20,000)
Depreciation deducted for income tax purposes in excess of reported for book
purposes (10,000) =
Taxable income 76,000
Enacted corporate income tax rate × 21% =
Current federal income tax liability $15,960
A deferred tax liability or asset should be adjusted for the effect of a change in
# Tax laws Tax rates
A No No
B No Yes
C Yes No
D Yes Yes - ANSWER:D Yes Yes
Deferred tax liabilities and assets shall be adjusted for the effect of a change in tax
laws or rates. The effect shall be included in income from continuing operations for
the period that includes the enactment date.
Zeff Co. prepared the following reconciliation of its pretax financial statement
income to taxable income for the current year ended December 31, its first year of
operations:
Pretax financial income $160,000
Nontaxable interest received on municipal securities (5,000)
Long-term loss accrual in excess of deductible amount 10,000
Depreciation in excess of financial statement amount (25,000)
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