66. What amount should be reported in its 2018 income statement as the deferred portion of income tax expense?
a. $140,000 debit
b. $175,000 debit
c. $140,000 credit
d. $175,000 credit
Mitchell Corporation prepared the following reconciliation for its first year of operations:
Pretax financial income for 2018 $ 1,800,000
Tax exempt interest (150,000)
Originating temporary difference (350,000)
Taxable income $1,300,000
The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2018 is 35%.
67. In Mitchell’s 2018 income statement, what amount should be reported for total income tax expense?
a. $690,000
b. $630,000
c. $595,000
d. $455,000
68. Ewing Company sells household furniture. Customers who purchase furniture on the installment basis make payments in equal monthly installments over a two-year period, with no down payment required. Ewing's gross profit on installment sales equals 40% of the selling price of the furniture.
For financial accounting purposes, sales revenue is recognized at the time the sale is made. For income tax purposes, however, the installment method is used. There are no other book and income tax accounting differences, and Ewing's income tax rate is 30%.
If Ewing's December 31, 2018, balance sheet includes a deferred tax liability of $900,000 arising from the difference between book and tax treatment of the installment sales, it should also include installment accounts receivable of
a. $7,500,000.
b. $3,000,000.
c. $2,250,000.
d. $675,000.
69. Ferguson Company has the following cumulative taxable temporary differences:
12/31/19 12/31/18
$3,600,000 $2,560,000
The tax rate enacted for 2019 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2019 is $6,400,000 and there are no permanent differences. Ferguson's pretax financial income for 2019 is
a. $10,000,000.
b. $7,440,000.
c. $5,360,000.
d. $2,800,000.
Lyons Company deducts insurance expense of $210,000 for tax purposes in 2018, but the expense is not yet recognized for accounting purposes. In 2019, 2020, and 2021, no insurance expense will be deducted for tax purposes, but $70,000 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 $180,000 at the end of 2018. There were no deferred taxes at the beginning of 2018.
70. What is the amount of the deferred tax liability at the end of 2018?
a. $84,000
b. $72,000
c. $30,000
d. $0
Lyons Company deducts insurance expense of $210,000 for tax purposes in 2018, but the expense is not yet recognized for accounting purposes. In 2019, 2020, and 2021, no insurance expense will be deducted for tax purposes, but $70,000 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 $180,000 at the end of 2018. There were no deferred taxes at the beginning of 2018.
71. What is the amount of income tax expense for 2018?
a. $264,000
b. $252,000
c. $210,000
d. $180,000
Lyons Company deducts insurance expense of $210,000 for tax purposes in 2018, but the expense is not yet recognized for accounting purposes. In 2019, 2020, and 2021, no insurance expense will be deducted for tax purposes, but $70,000 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 $180,000 at the end of 2018. There were no deferred taxes at the beginning of 2018.
72. Assuming that income taxes payable for 2019 is $240,000, the income tax expense for 2019 would be what amount?
a. $324,000
b. $268,000
c. $240,000
d. $212,000
Kraft Company made the following journal entry in late 2018 for rent on property it leases to Danford Corporation.
Cash 150,000
Unearned Rent Revenue 150,000
The payment represents rent for the years 2019 and 2020, the period covered by the lease. Kraft Company is a cash basis taxpayer. Kraft has income tax payable of $230,000 at the end of 2018, and its tax rate is 35%.
73. What amount of income tax expense should Kraft Company report at the end of 2018?
a. $132,500
b. $177,500
c. $203,750
d. $282,500
Kraft Company made the following journal entry in late 2018 for rent on property it leases to Danford Corporation.
Cash 150,000
Unearned Rent Revenue 150,000
The payment represents rent for the years 2019 and 2020, the period covered by the lease. Kraft Company is a cash basis taxpayer. Kraft has income tax payable of $230,000 at the end of 2018, and its tax rate is 35%.
74. Assuming the income taxes payable at the end of 2019 is $255,000, what amount of income tax expense would Kraft Company record for 2019?
a. $202,500
b. $228,750
c. $281,250
d. $307,500
75. The following information is available for Kessler Company after its first year of
operations:
Income before taxes $250,000
Federal income tax payable $104,000
Deferred income tax (4,000)
Income tax expense 100,000
Net income $150,000
Kessler estimates its annual warranty expense as a percentage of sales. The amount charged to warranty expense on its books was $95,000. Assuming a 40% income tax rate, what amount was actually paid this year for warranty claims?
a. $105,000
b. $100,000
c. $95,000
d. $85,000
At the beginning of 2018; Elephant, Inc. had a deferred tax asset of $20,000 and a deferred tax liability of $30,000. Pre-tax accounting income for 2018 was $1,500,000 and the enacted tax rate is 40%. The following items are included in Elephant’s pre-tax income:
Interest income from municipal bonds $120,000
Accrued warranty costs, estimated to be
paid in 2019 $260,000
Operating loss carryforward $190,000
Installment sales profit, will be taxed
in 2019 $130,000
Prepaid rent expense, will be used in 2019 $60,000
76. What is Elephant, Inc.’s taxable income for 2018?
a. $1,500,000
b. $1,260,000
c. $1,740,000
d. $2,260,000
At the beginning of 2018; Elephant, Inc. had a deferred tax asset of $20,000 and a deferred tax liability of $30,000. Pre-tax accounting income for 2018 was $1,500,000 and the enacted tax rate is 40%. The following items are included in Elephant’s pre-tax income:
Interest income from municipal bonds $120,000
Accrued warranty costs, estimated to be
paid in 2019 $260,000
Operating loss carryforward $190,000
Installment sales profit, will be taxed
in 2019 $130,000
Prepaid rent expense, will be used in 2019 $60,000
77. Which of the following is required to adjust Elephant, Inc.’s deferred tax asset to its correct balance at December 31, 2018?
a. A credit of $104,000
b. A credit of $76,000
c. A debit of $76,000
d. A debit of $84,000
At the beginning of 2018; Elephant, Inc. had a deferred tax asset of $20,000 and a deferred tax liability of $30,000. Pre-tax accounting income for 2018 was $1,500,000 and the enacted tax rate is 40%. The following items are included in Elephant’s pre-tax income:
Interest income from municipal bonds $120,000
Accrued warranty costs, estimated to be
paid in 2019 $260,000
Operating loss carryforward $190,000
Installment sales profit, will be taxed
in 2019 $130,000
Prepaid rent expense, will be used in 2019 $60,000
78. The ending balance in Elephant, Inc.’s deferred tax liability at December 31, 2018 is
a. $46,000
b. $76,000
c. $52,000
d. $156,000
Rowen, Inc. had pre-tax accounting income of $2,700,000 and a tax rate of 40% in 2018, its first year of operations. During 2018 the company had the following transactions:
Received rent from Jane, Co. for 2019 $ 96,000
Municipal bond income $120,000
Depreciation for tax purposes in excess of book depreciation $60,000
Installment sales profit to be taxed in 2019 $162,000
79. For 2018, what is the amount of income taxes payable for Rowen, Inc?
a. $904,800
b. $981,600
c. $1,029,600
d. $1,159,200
Rowen, Inc. had pre-tax accounting income of $2,700,000 and a tax rate of 40% in 2018, its first year of operations. During 2018 the company had the following transactions:
Received rent from Jane, Co. for 2019 $ 96,000
Municipal bond income $120,000
Depreciation for tax purposes in excess of book depreciation $60,000
Installment sales profit to be taxed in 2019 $162,000
80. At the end of 2018, which of the following deferred tax accounts and balances exist at December 31, 2018?
Account _ Balance
a. Deferred tax asset $38,400
b. Deferred tax liability $38,400
c. Deferred tax asset $62,400
d. Deferred tax liability $62,400
81. Based on the following information, compute 2018 taxable income for South Co. assuming that its pre-tax accounting income for the year ended December 31, 2018 is $460,000.
Future taxable
Temporary difference (deductible) amount
Installment sales $384,000
Depreciation $120,000
Unearned rent ($400,000)
a. $564,000
b. $356,000
c. $964,000
d. $444,000
82. Fleming Company has the following cumulative taxable temporary differences:
12/31/18 12/31/17
$1,600,000 $2,250,000
The tax rate enacted for 2018 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2018 is $4,000,000 and there are no permanent differences. Fleming’s pretax financial income for 2018 is:
a. $2,400,000
b. $3,350,000
c. $4,325,000
d. $5,600,000
83. Larsen Corporation reported $200,000 in revenues in its 2018 financial statements, of which $66,000 will not be included in the tax return until 2019. The enacted tax rate is 40% for 2018 and 35% for 2019. What amount should Larsen report for deferred income tax liability in its balance sheet at December 31, 2018?
a. $23,100
b. $26,400
c. $29,400
d. $33,600
84. Duncan Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Profits of $1,200,000 recognized for books in 2017 will be collected in the following years:
Collection of Profits
2018 $200,000
2019 $400,000
2020 $600,000
The enacted tax rates are: 40% for 2017, 35% for 2018, and 30% for 2019 and 2020. Taxable income is expected in all future years. What amount should be included in the December 31, 2017, balance sheet for the deferred tax liability related to the above temporary difference?
a. $ 70,000
b. $300,000
c. $370,000
d. $480,000
85. At December 31, 2017 Raymond Corporation reported a deferred tax liability of $240,000 which was attributable to a taxable temporary difference of $800,000. The temporary difference is scheduled to reverse in 2021. During 2018, a new tax law increased the corporate tax rate from 30% to 40%. Raymond should record this change by debiting
a. Retained Earnings for $80,000.
b. Retained Earnings for $24,000.
c. Income Tax Expense for $24,000.
d. Income Tax Expense for $80,000.
86. Palmer Co. had a deferred tax liability balance due to a temporary difference at the beginning of 2017 related to $1,500,000 of excess depreciation. In December of 2017, a new income tax act is signed into law that lowers the corporate rate from 40% to 35%, effective January 1, 2019. If taxable amounts related to the temporary difference are scheduled to be reversed by $750,000 for both 2018 and 2019, Palmer should increase or decrease deferred tax liability by what amount?
a. Decrease by $75,000
b. Decrease by $37,500
c. Increase by $37,500
d. Increase by $75,000
87. A reconciliation of Gentry Company's pretax accounting income with its taxable income for 2018, its first year of operations, is as follows:
Pretax accounting income $4,500,000
Excess tax depreciation (225,000)
Taxable income $4,275,000
The excess tax depreciation will result in equal net taxable amounts in each of the next three years. Enacted tax rates are 40% in 2018, 35% in 2019 and 2020, and 30% in 2021. The total deferred tax liability to be reported on Gentry's balance sheet at December 31, 2018, is
a. $90,000.
b. $75,000.
c. $78,750.
d. $67,500.
88. Khan, Inc. reports a taxable and financial loss of $2,250,000 for 2019. Its pretax financial income for the last two years was as follows:
2017 $900,000
2018 1,200,000
The amount that Khan, Inc. reports as a net loss for financial reporting purposes in 2019, assuming that it uses the carryback provisions, and that the tax rate is 30% for all periods affected, is
a. $2,250,000 loss.
b. $ -0-.
c. $675,000 loss.
d. $1,575,000 loss.
Wilcox Corporation reported the following results for its first three years of operation:
2017 income (before income taxes) $ 300,000
2018 loss (before income taxes) (2,700,000)
2019 income (before income taxes) 3,000,000
There were no permanent or temporary differences during these three years. Assume a corporate tax rate of 30% for 2017 and 2018, and 40% for 2019.
89. Assuming that Wilcox elects to use the carryback provision, what income (loss) is reported in 2018? (Assume that any deferred tax asset recognized is more likely than not to be realized.)
a. $(2,700,000)
b. $ -0-
c. $(2,610,000)
d. $(1,650,000)
Wilcox Corporation reported the following results for its first three years of operation:
2017 income (before income taxes) $ 300,000
2018 loss (before income taxes) (2,700,000)
2019 income (before income taxes) 3,000,000
There were no permanent or temporary differences during these three years. Assume a corporate tax rate of 30% for 2017 and 2018, and 40% for 2019.
90. Assuming that Wilcox elects to use the carryforward provision and not the carryback provision, what income (loss) is reported in 2018?
a. $(2,700,000)
b. $(1,620,000)
c. $ -0-
d. $(2,610,000)
91. Rodd Co. reports a taxable and pretax financial loss of $900,000 for 2018. Rodd's taxable and pretax financial income and tax rates for the last two years were:
2016 $900,000 30%
2017 900,000 35%
The amount that Rodd should report as an income tax refund receivable in 2018, assuming that it uses the carryback provisions and that the tax rate is 40% in 2018, is
a. $270,000.
b. $315,000.
c. $360,000.
d. $405,000.
92. Nickerson Corporation began operations in 2016. There have been no permanent or temporary differences to account for since the inception of the business. The following data are available:
Year
2016
2017
2018
2019 Enacted Tax Rate
45%
40%
35%
30% Taxable Income
$2,000,000
2,400,000 Taxes Paid
$900,000
960,000
In 2018, Nickerson had an operating loss of $2,480,000. What amount of income tax benefits should be reported on the 2018 income statement due to this loss assuming that it uses the carryback provision?
a. $1,092,000
b. $996,000
c. $992,000
d. $744,000
Operating income and tax rates for C.J. Company’s first three years of operations were as
follows:
Income _ Enacted tax rate
2017 $400,000 35%
2018 ($1,000,000) 30%
2019 $1,680,000 40%
93. Assuming that C.J. Company opts to carryback its 2018 NOL, what is the amount of income taxes payable at December 31, 2019?
a. $272,000
b. $672,000
c. $492,000
d. $432,000
Operating income and tax rates for C.J. Company’s first three years of operations were as
follows:
Income _ Enacted tax rate
2017 $400,000 35%
2018 ($1,000,000) 30%
2019 $1,680,000 40%
94. Assuming that C.J. Company opts only to carryforward its 2018 NOL, what is the amount of deferred tax asset or liability that C.J. Company would report on its December 31, 2018 balance sheet?
Amount _ Deferred tax asset or liability
a. $300,000 Deferred tax liability
b. $350,000 Deferred tax liability
c. $400,000 Deferred tax asset
d. $300,000 Deferred tax asset
MULTIPLE CHOICE—CPA Adapted
95. Munoz Corp.'s books showed pretax financial income of $3,600,000 for the year ended December 31, 2018. In the computation of federal income taxes, the following data were considered:
Gain on an involuntary conversion $1,560,000
(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 240,000
Federal estimated tax payments, 2018 300,000
Enacted federal tax rate, 2018 30%
What amount should Munoz report as its current federal income tax liability on its December 31, 2018 balance sheet?
a. $240,000
b. $312,000
c. $540,000
d. $612,000
96. Haag Corp.'s 2018 income statement showed pretax accounting income of $2,500,000. To compute the federal income tax liability, the following 2018 data are provided:
Income from exempt municipal bonds $ 100,000
Depreciation deducted for tax purposes in excess of depreciation
deducted for financial statement purposes 200,000
Estimated federal income tax payments made 500,000
Enacted corporate income tax rate 30%
What amount of current federal income tax liability should be included in Hagg's December 31, 2018 balance sheet?
a. $160,000
b. $220,000
c. $250,000
d. $660,000
97. On January 1, 2018, Gore, Inc. purchased a machine for $2,250,000 which will be depreciated $225,000 per year for financial statement reporting purposes. For income tax reporting, Gore elected to expense $250,000 and to use straight-line depreciation which will allow a cost recovery deduction of $200,000 for 2018. 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, 2018?
a. $135,000
b. $75,000
c. $67,500
d. $60,000
98. On January 1, 2018, Piper Corp. purchased 40% of the voting common stock of Betz, Inc. and appropriately accounts for its investment by the equity method. During 2018, Betz reported earnings of $1,200,000 and paid dividends of $400,000. Piper assumes that all of Betz's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 30%. Ignore the dividend-received deduction. Piper's current enacted income tax rate is 25%. The increase in Piper's deferred income tax liability for this temporary difference is
a. $240,000.
b. $200,000.
c. $144,000.
d. $ 96,000.
99. Foltz Corp.'s 2018 income statement had pretax financial income of $500,000 in its first year of operations. Foltz uses an accelerated cost recovery method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions for depreciation over the five-year life of the assets acquired in 2018, and the enacted tax rates for 2018 to 2022 are as follows:
Book Over (Under) Tax Tax Rates
2018 $(100,000) 35%
2019 (130,000) 30%
2020 (30,000) 30%
2021 120,000 30%
2022 140,000 30%
There are no other temporary differences. In Foltz's December 31, 2018 balance sheet, the noncurrent deferred income tax liability and the income taxes currently payable should be
Noncurrent Deferred Income Taxes
Income Tax Liability Currently Payable
a. $78,000 $100,000
b. $78,000 $140,000
c. $30,000 $120,000
d. $30,000 $140,000
100. Didde Corp. prepared the following reconciliation of income per books with income per tax return for the year ended December 31, 2018:
Book income before income taxes $2,700,000
Add temporary difference
Construction contract revenue which will reverse in 2019 240,000
Deduct temporary difference
Depreciation expense which will reverse in equal amounts
in each of the next four years (960,000)
Taxable income $1,980,000
Didde's effective income tax rate is 34% for 2018. What amount should Didde report in its 2018 income statement as the current provision for income taxes?
a. $ 81,600
b. $673,200
c. $918,000
d. $999,600
