Income Taxes

Which of the following creates a permanent difference between financial income and taxable income?

a.Interest received on municipal bonds

b.Completed contract method of recognizing construction revenue

c.Unearned rent revenue

d.Accelerated cost recovery on plant and equipment

Which of the following is the most likely item to result in a deferred tax asset?

a.Using accelerated depreciation for tax purposes but straight-line depreciation for accounting purposes

b.Using the completed-contract method of recognizing construction revenue tax purposes, but using percentage-of-completion method for financial reporting purposes

c.Prepaid expenses

d.Unearned revenues

Dodger Corporation reported a loss for both financial reporting purposes and tax reporting purposes of $231,000 in 2011. For financial reporting purposes, Dodger reported income before taxes for years 2008-2010 as listed below:

2008 ............................$ 66,000

2009 ............................99,000

2010 ............................132,000

Assuming Dodger's tax rate is 30 percent in all periods, and that the company uses the carryback provisions, what amount should appear in Dodger's statements for financial reporting purposes as a net loss in 2011?

a.$0

b.$69,300

c.$161,700

d.$234,300

In 2011 Taggart Inc. reported pretax financial income of $750,000. Included in that pretax financial income was $80,000 of nontaxable life insurance proceeds received as a result of the death of an officer; $100,000 of warranty expenses accrued but unpaid as of December 31, 2011; and $40,000 of life insurance premiums for a policy for an officer. Assuming that no income taxes were previously paid during the year and assuming an income tax rate of 35 percent, the amount of income taxes payable on December 31, 2011, would be

a.$255,500.

b.$283,500.

c.$311,500.

d.$213,500.

An example of a "deductible temporary difference" occurs when

a.the installment sales method is used for tax purposes, but the accrual method of recognizing sales revenue is used for financial reporting purposes.

b.accelerated depreciation is used for tax purposes but straight-line depreciation is used for accounting purposes.

c.warranty expenses are recognized on the accrual basis for financial reporting purposes but recognized as the warranty conditions are met for tax purposes.

d.the completed-contract method of recognizing construction revenue is used for tax purposes, but the percentage-of-completion method is used for financial reporting purposes.

A deferred tax liability arising from the use of an accelerated method of depreciation for tax purposes and the straight-line method for financial reporting purposes would be classified on the balance sheet as

a.a current liability.

b.a noncurrent liability.

c.a current liability for the portion of the temporary difference reversing within a year and a noncurrent liability for the remainder.

d.an offset to the accumulated depreciation reported on the balance sheet.

The Roberts Corporation reported a $75,000 operating loss in 2011. In the preceding three years, Roberts reported the following income before taxes and paid the indicated income taxes:

The amount of tax benefit to be reported in 2011 arising from the tax carryback provisions of the current tax code would be

a. $40,000.

b. $28,000.

c. $21,800.

d. $26,250.