Chapter 13 Income Tax Reporting Flashcards
Assume that Maddox Corporation buys new equipment for $15,000 on January 1, 2018. Depreciation for book purposes using the SL method is $3,000 and $5,000 for tax purposes using the SYD method. Assume that depreciation is the only Book-vs-tax difference. Income from depreciation and taxes is $30,000 each year over the next five years and the statutory tax rate is 40%. How much will the company report as deferred tax liability for 2018?
800 : ((30,000-3,000) - (30,000-5,000)) = 27,000-25,000 = 2000 x .4)
Temporary differences that result in deferred tax assets are called _______ _______ amounts.
future deductible
The cumulative temporary differences between book and tax amounts for depreciation over the period depreciated
will be equal to zero.
Assume that Maddox Corporation buys new equipment for $15,000 on January 1, 2018. Depreciation for book purposes using the SL method is $3,000 and $5,000 for tax purposes using the SYD method. Assume that depreciation is the only Book-vs-tax difference. Income from depreciation and taxes is $30,000 each year over the next five years and the statutory tax rate is 40%. Which of the following will be included in the journal entry for 2021?
a credit to income tax payable of $11,200.
Dusack Corporation had a net operating loss of $525,000 in 2018. In the previous years , they had taxable income of $50,000 in 2015, $200,000 in 2016 and $250,000 in 2017. Their statutory tax rate was 40% for each year. For 2018, this will result in
A deferred tax asset of $30,000 ($525,000 - ($200,000 + $250,000) = $75,000 x 40% = $30,000)
Dusack Corporation had a net operating loss of $525,000 in 2018. In the previous years , they had taxable income of $50,000 in 2015, $200,000 in 2016 and $250,000 in 2017. Their statutory tax rate was 40% for each year. What is the income tax refund receivable?
$180,000: ($200,000 + $250,000) x 40%)
The valuation allowance account that is used with deferred tax assets is a(n):
contrast asset
Effective in 2017, if a US firm had a net deferred tax liability and its consolidated subsidiary had a net deferred tax asset
the two amounts would not be netted against each other
Assume that Maddox Corporation buys new equipment for $15,000 on January 1, 2018. Depreciation for book purposes using the SL method is $3,000 and $5,000 for tax purposes using the SYD method. Assume that depreciation is the only Book-vs-tax difference. Income from depreciation and taxes is $30,000 each year over the next five years and the statutory tax rate is 40% in 2019. The entry to record income tax for 2019 would include
a credited deferred tax liability for $500. ($2000 + $1000) x 40% - $2000 x 35%)
Deferred tax liabilities arise when
taxable income is less than book income
Assume that Maddox Corporation buys new equipment for $15,000 on January 1, 2018. Depreciation for book purposes using the SL method is $3,000 and $5,000 for tax purposes using the SYD method. Assume that depreciation is the only Book-vs-tax difference. Income from depreciation and taxes is $30,000 each year over the next five years and the statutory tax rate is 40%. Which of the following statements is true?
- Maddox has a deferred tax asset of $2000
- Maddox has a deferred tax liability of $2000
- Maddox has a deferred tax asset of $800
- Maddox has a deferred tax liability of $800
Maddox has a deferred tax liability of $800
The way of thinking about deferred taxes as the existence of deferred tax assets and liabilities is called the
balance sheet approach
Deferred tax liabilities arise when
taxable income is less than book income
- An item that will enter into accounting income but will never affect taxable income is a ______ difference.
Permanent
An item that will enter into accounting income but will never affect taxable income is a ______ difference.
Permanent
An item that causes book income to be more or less than taxable income initially is called a(n) _____ temporary difference
originating
An item that enters into determination of taxable income but that will never affect accounting income is called a ______ difference.
Permanent
Assume that Maddox Corporation buys new equipment for $15,000 on January 1, 2018. Depreciation for book purposes using the SL method is $3,000 and $5,000 for tax purposes using the SYD method. Assume that depreciation is the only Book-vs-tax difference. Income from depreciation and taxes is $30,000 each year over the next five years and the statutory tax rate is 40%.What is the effective tax rate for 2018?
37%
Book income ($30,000 - $3000) = $27,000
Taxable income ($30,000 - $5000) = $25,000
Tax expense $25,000 x 40% = $10,000
Effective tax rate $10,000/$27,000
Assume that Maddox Corporation buys new equipment for $15,000 on January 1, 2018. Depreciation for book purposes using the SL method is $3,000 and $5,000 for tax purposes using the SYD method. Assume that depreciation is the only Book-vs-tax difference. Income from depreciation and taxes is $30,000 each year over the next five years and the statutory tax rate is 40%. What is the effective tax rate for 2018?
$10,800 (($30,000 - $3000) = $27,000 x 40%)
Assume that Maddox Corporation buys new equipment for $15,000 on January 1, 2018. Depreciation for book purposes using the SL method is $3,000 and $5,000 for tax purposes using the SYD method. Assume that depreciation is the only Book-vs-tax difference. Income from depreciation and taxes is $30,000 each year over the next five years and the statutory tax rate is 40%. What is the effective tax rate for 2018?
$10,800 (($30,000 - $3000) = $27,000 x 40%)
An example of a temporary difference is
rent revenue received in advance since these amounts are taxed when received for tax purposes but are recorded as liabilities for book purposes.
Effective in 2017,
• all deferred tax assets and liabilities are classified as noncurrent
• all deferred tax assets and liabilities are classified as current
• a separate noncurrent asset or liability is shown if all business is conducted in the United States
• US GAAP requires firms to classify deferred tax assets or deferred tax liabilities according to the originating asset or liability
all deferred tax assets and liabilities are classified as noncurrent
When the tax rate increases,
• the full change in the amount of future liability for income taxes is recognized as a prior period of adjustment
• the full change in the amount of future liability for income taxes is recognized as income tax expenses in the year the tax rate change is enacted
• the change in the amount of future liability for income taxes is recognized as income tax expenses in the years following the rate change
the full change in the amount of future liability for income taxes is recognized as income tax expenses in the year the tax rate change is enacted
Earning interest on municipal bonds
has no effect on deferred tax liabilities