F6 - Leases, Derivatives, Foriegn currency and taxes

Question 1

At the inception of a capital (finance) lease, the guaranteed residual value should be:

a. Included as part of minimum lease payments at PV
b. Included as part of minimum lease payments only to the extent that guaranteed residual value is expected to exceed est. residual value
c. Excluded from minimum lease payments
d. Included as part of minimum lease payments at future value

Answer 1

A.

Question 2

When calculating the PV of the minimum lease payments, the lessee uses the:

a. greater of Implicit or incremental borrowing rate
b. lower of implicit or incremental borrowing rate

Answer 2

B. always use the lesser

Question 3

How are derivative instruments measured on the balance sheet?

a. BV
b. FV

Answer 3

b.

Question 4

Zeff prepared the following reconciliation of its pretax financial statement income to taxable income for the year ended 12/31/01.
Pretax Financial income $160k
Nontaxable interest received on municipal ($5k)
LT loss accrual in excess of deduct amt $10k
Depreciation in excess of FS amt ($25k)
Zeffs tax rate is 40%, what is their deferred income tax liability for yr 1?
a. $4k
b. $6k

Answer 4

b.
Tax F/S
Income 160 Permanent 160
Muni -5 Permanent
Est Loss 10 -10
Excess depr. -25 25
————————————————————————————140x40% = 56 inc tax liab 15x40%=6 def 62

Question 5

Tax/deductible amt Taxable status yr1 ops
a. Deductible Profit
b. Taxable Profit
c. Taxable Loss
d. Deductible Loss

Answer 5

A. the reversal of a temporary difference will result in future deductible amt because a deferred tax asset represents future tax savings. These tax savings will be realized in the form of future tax deductions that will reduce the amount of future taxes owed.

Question 6

Which of the following items is not subject to the application of intraperiod income tax allocation?

a. Discontinued operations
b. Accounting principle change (retrospective)
c. Income from continuing operations
d. Operating income

Answer 6

D. only select items on the I/S are shown “net of tax”

Question 7

Which of the following statement is a primary objective of accounting for income taxes?

a. To identify all of the permanent and temporary differences of an enterprise
b. to recognize the amount of deferred tax liabilities and deferred tax assets reported for future tax consequences.
c. to compare an enterprise’s fed tax liability to state tax liability

Answer 7

b.

Question 8

For interim financial reporting, a company’s income tax provision for the second quarter should be determined using the:

a. Effective tax rate expected to be applicable for the second quarter
b. Effective tax rate expected to be applicable for the full year as estimated at the end of the second quarter.

Answer 8

d. The best, most current estimate of the annual effective tax rate should be used

Question 9

Bard, a calendar year corp, reported income before income tax expense of $10k and income tax expense of $1.5k in its interim income statement for the first quarter of the year. Bard had income before income tax expense of $20k for the second quarter and an estimated effective annual rate of 25%. What amount should Bard report as income tax expense in its interim income statement for the second quarter?

Answer 9

6,000 - in order to calculate income tax expense on an interim statement, te appropriate methodology is to multiply year to date income by the effective tax rate and subtract from that the income tax expense recorded in the previous quarter.
10k (Q1) + 20k (Q2) = 30k x25% = 7.5k total tax expense
7.5-1.5 (prev recognized) =6k for Q2