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Exam 3: Taxes on the Financial Statements

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Question 41

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Clipp, Inc., earns book net income before tax of $600,000.Clipp puts into service a depreciable asset this year, and its 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 21%, what is Clipp's deferred income tax liability reported on its GAAP financial statements?

A) $151,200
B) $126,000
C) $100,800
D) $25,200

E) None of the above
F) A) and D)

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Question 42

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

A) Federal income taxes.
B) Foreign income taxes.
C) State income taxes.
D) All these taxes are included.

E) A) and C)
F) A) and B)

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Question 43

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A corporation's taxable income almost never is the same as its GAAP financial accounting income.Explain why this occurs.Use the terms permanent and temporary book-tax differences in your answer.Give at least two examples of each type of book-tax difference.

JiangCo constructs the following table in determining how to apply ASC 740-10 to its filing position for a transfer pricing issue.Its book-tax provision for the year, including $3 million for the uncertain transfer pricing issue, is $10 million. Under ASC 740-10, JiangCo's book income tax expense for this item is:

The best estimate of the actual current-year income tax liability (i.e., perhaps the amount of the checks that the taxpayer will write to taxing jurisdictions) is the:

Purple, Inc., a domestic corporation, owns 80% of Blue, Ltd., a foreign corporation and Yellow, Inc., a domestic corporation.Purple also owns 50% of Green, Inc., a domestic corporation.Purple receives no distributions from any of these corporations.Which of these entities' net income is included in Purple's Federal income tax return for the current year, assuming that Purple elects to include all eligible entities in its consolidated Federal income tax return?

At the beginning of the year, the balance sheet of Schrader, Inc., shows a $500,000 deferred tax asset relating to a net operating loss carryforward offset by a $90,000 valuation allowance.At the end of the year, Schrader's auditors agree to release $20,000 of the allowance.Provide the journal entry to record this change in the valuation allowance.

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

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

Only U.S.corporations are included in a combined GAAP financial statement.