Bakersfield College

ACG 2021

1)The financial reporting carrying value of Boze Musics only depreciable asset exceeded its tax basis by

$150,000 at December 31, 2016. This was a result of differences between straight-line depreciation for financial reporting purposes and MACRS for tax purposes. The asset was acquired earlier in the year. Boze has no other temporary differences. The enacted tax rate is 30% for 2016 and 40% thereafter. Boze should report the deferred tax effect of this difference in its December 31, 2016, balance sheet as:

1. 1. A liability of $45,000.
   2. A liability of $60,000.
   3. An asset of $45,000.
   4. An asset of $60,000.

 

 

 

 

2. The effect of a change in tax rates:
   1. Results in a prior period adjustment.
   2. Is allocated between discontinued operations and continuing operations.
   3. Is reported separately after discontinued operations.
   4. Is reflected in income from continuing operations.

 

 

 

 

3. Giada Foods reported $940 million in income before income taxes for 2016, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for 2016 was 35%, but the enacted rate for years after 2016 is 40%. The balance in the deferred tax liability in the December 31, 2016, balance sheet is:
   1. $16 million.
   2. $35 million.
   3. $40 million.
   4. $56 million.

 

 

 

 

4. In its first year of operations, Woodmount Corporation reported pretax accounting income of

$500 million for the current year. Depreciation reported in the tax return in excess of depreciation in the income statement was $60 million. The excess tax will reverse itself evenly over the next three years. The current year's tax rate of 40% will be reduced under the current law to 35% next year and 30% for all subsequent years. At the end of the current year, the deferred tax liability related to the excess depreciation will be:

1. 1. $21 million.
   2. $24 million.
   3. $18 million.
   4. $19 million.

 

 

5. Bumble Bee Co. had taxable income of $7,000, MACRS depreciation of $5,000, book depreciation of $2,000, and accrued warranty expense of $400 on the books although no warranty work was performed. What is Bumble Bee's pretax accounting income?

a.     $4,400.

b.     $3,600.

c.     $9,600.

d.     $2,600.

 

 

6. For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included warranty expense of $6 and $20 in depreciation expense. Two million of warranty costs were incurred, and MACRS depreciation amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's income tax payable currently, assuming a tax rate of 40%?
   1. 19.6 million.
   2. 25.2 million.
   3. 27.6 million.
   4. 29.2 million.

 

 

 

 

 

 

 

 

 

7. For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included warranty expense of $6 and $20 in depreciation expense. Two million of warranty costs were incurred, and MACRS depreciation amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's taxable income?
   1. $73 million.
   2. $69 million.
   3. $63 million.
   4. $49 million.

 

 

 

 

8. Under current tax law, generally a net operating loss may be carried back:
   1. 2 years.
   2. 5 years.
   3. 15 years.
   4. 20 years.

 

 

 

 

9. Under current tax law a net operating loss may be carried forward up to:
   1. 5 years.
   2. 10 years.
   3. 15 years.
   4. 20 years.

 

 

 

 

10. If a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that:
    1. Sufficient accounting income will be generated in future years to realize the full tax benefit.
    2. Sufficient accounting and taxable income will exist in future years to realize the full tax benefit.
    3. Sufficient taxable income will be generated in future years to realize the full tax benefit.
    4. Tax rates will not change in future years.

 

 

11. A net operating loss (NOL) carryforward cannot result in the balance sheet at the end of the NOL year showing:
    1. A receivable under current assets for an income tax refund.
    2. A current deferred tax asset.
    3. A noncurrent deferred tax asset.
    4. Both a current and a noncurrent deferred tax asset.

 

 

 

 

12. The tax effect of a net operating loss (NOL) carryback usually:
    1. Results in a current receivable at the end of the NOL year.
    2. Is subject to a valuation allowance.
    3. Is reflected as deferred tax asset at the end of the NOL year.
    4. Is reflected as a deferred tax liability at the end of the NOL year.

 

 

 

13. Recognizing tax benefits in a loss year due to a net operating loss carryforward requires:
    1. Creating a tax refund receivable.
    2. Note disclosure only.
    3. Creating a deferred tax asset.
    4. Creating a deferred tax liability.

 

 

 

 

14. In its first four years of operations Peridot Jewelers reported the following operating income (loss) amounts:

 

2013                                           $150,000

2014                                             100,000

2015                                           (425,000)

2016                                             450,000

 

There were no other deferred income taxes in any year. In 2015, Peridot elected to carry back its operating loss. The enacted income tax rate was 40%. In its 2016 income statement, what amount should Peridot report as income tax expense?

a.    $ 80,000.

b.   $110,000.

c.     $170,000.

d.   $180,000.

 

 

 

 

15. The Kelso Company had the following operating results:

 

Year	Income (loss)	Tax rate	Income tax
2014	30,000	35%	10,500 first year of operations
2015	45,000	30%	13,500
2016	(60,000)	30%	0

What is the income tax refund receivable? a.        $18,000

b.   $19,500

c.     $18,750

d.   $24,000

 

 

 

16. In 2016, Bodily Corporation reported $300,000 pretax accounting income. The income tax rate for that year was 30%. Bodily had an unused $120,000 net operating loss carryforward from 2014 when the tax rate was 40%. Bodily’s income tax payable for 2016 would be

a.     $54,00

b.    $42,000

c.     $90,000

d.    $72,000

 

 

 

 

17. In its first three years of operations Sharp Chairs reported the following operating income (loss) amounts:

 

2014	$ 1,350,000
2015	(3,150,000)
2016	5,400,000

There were no deferred income taxes in any year. In 2015, Sharp elected to carry back its operating loss. The enacted income tax rate was 35% in 2014 and 40% thereafter. In its 2016 balance sheet, what amount should Sharp report as current income tax payable?

a.     $ 900,000.

b.    $1,260,000.

c.     $1,440,000.

d.    $2,160,000.

 

 

 

 

18. In its first four years of operations Peridot Jewelers reported the following operating income (loss) amounts:

 

2013                                           $150,000