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Exam 3: Taxes on the Financial Statements

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Amelia,Inc.,is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year.Assume a 34% corporate tax rate and no valuation allowance. Amelia,Inc.'s,gross deferred tax assets and liabilities at the beginning of Amelia's year are listed below. Amelia,Inc.'s,book income before tax is $25,200.Amelia records two permanent book-tax differences.It earned $1,000 in tax-exempt municipal bond interest and $1,840 in nondeductible meals and entertainment expense.Determine the net deferred tax asset or net deferred tax liability at year end.

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Given these basis differenc...

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Question 2

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A partnership owned at least 80% by a corporation is included in a consolidated group's U.S.income tax return.

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B) False

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Question 3

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Which of the following taxes are included in the total income tax liability of a corporation reported on its Federal tax return?

Kling Corporation reports a $150,000 cash tax savings from a temporary book-tax difference.This item has the same effect on Kling's current year effective tax rate as a $150,000 cash tax savings that is a permanent book-tax difference.

A deferred tax liability represents a current tax liability associated with income or expense to be reported in future year GAAP financial statements.

Black,Inc.,is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year.Assume a 35% corporate tax rate and no valuation allowance.

Hot,Inc.'s primary competitor is Cold,Inc.When comparing relative deferred tax asset and liability accounts with Cold,which of the following benchmarking activities should Hot undertake?

Which of the following items are not included in the GAAP financial statement income tax footnote's effective tax rate reconciliation?

At the beginning of the year,Schrader,Inc.,holds a net operating loss carryforward,and its balance sheet shows a related deferred tax asset of $500,000.At the end of the year,the balance in the deferred tax asset account has not changed,but Schrader's auditors want to record a $90,000 valuation allowance against this amount,because of a persistent downturn in Schrader's profitability.Develop the journal entry to record the valuation allowance.

Which of the following items represents a temporary book-tax difference?

Book-tax differences can be explained in part by examining the objectives underlying financial accounting and taxable income computations.Evaluate this statement.

Purple,Inc.,a domestic corporation,owns 100% of Blue,Ltd.,a foreign corporation and Yellow,Inc.,a domestic corporation.Purple also owns 40% of Green,Inc.,a domestic corporation.Purple receives no distributions from any of these corporations.Which of these entities' net income are included in Purple's GAAP income statement for current year financial reporting purposes?

Create,Inc.,a domestic corporation,owns 100% of Vinyl,Ltd.,a foreign corporation and Digital,Inc.,a domestic corporation.Create also owns 12% of Record,Inc.,a domestic corporation.Create receives no distributions from any of these corporations.Which of these entities' net income are included in Create's income statement for current year financial reporting purposes?

A valuation allowance reflects uncertainty that the taxpayer will be able to recover a deferred tax asset.

Clipp,Inc.,earns book net income before tax of $600,000.Clipp puts into service a depreciable asset this year,and first year tax depreciation exceeds book depreciation by $120,000.Clipp has recorded no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 35%,what is Clipp's deferred income tax liability reported on its GAAP financial statements?

ASC 740 (FIN 48)addresses how an entity should report uncertain tax positions in their financial statements.

Which of the following statements best describes considerations regarding a company's tax expense that may be made by users of GAAP financial statements?

Create,Inc.,a domestic corporation,owns 90% of Vinyl,Ltd.,a foreign corporation and Digital,Inc.,a domestic corporation.Create also owns 60% of Record,Inc.,a domestic corporation.Create receives no distributions from any of these corporations.Which of these entities' net income are included in Create's Federal tax return for the current year assuming Create elects to include all eligible entities in its consolidated Federal income tax return?

"Permanent differences" include items that appear in the Federal income tax return as income or deduction,and in the GAAP financial statements as revenue or expense,but in different reporting periods.

In general,the purpose of ASC 740 (SFAS 109)is to compute and disclose the taxes payable by a business entity to state,local,Federal,and foreign governments,for the current year and all future years.