Payable and Taxes

Question 1

What would create a deferred tax asset?

Answer 1

Deferred tax asset is recognized when there is a temporary difference between income under GAAP

Question 2

What is considered a permanent book to tax difference?

Answer 2

permanent difference are never revered. That means there are no deferred tax consequences

Question 3

Current liabilities includes which obligations?

Answer 3

it includes obligations due on demand within one year

Obligations that will be replaced by other current liabilities

Question 4

What are the requirement by GAAP for accrual vacation pay?

Answer 4

the accruals for vacation pay benefits either vest or accumulated and payment is both probable and reasonably estimated

Question 5

Adjusted balance officers compensation expense for the year Dec 31st year 1?

Answer 5

Compensation expense
490,000
Officers Salaries.18,000
Total amount 175,000

= 683,000 Compensation expense for the year

Question 6

What is a contract liability?

Answer 6

examples would be a deposit

Question 7

When is Revenue Recognized ?

Answer 7

When the goods or services are transferring promise to the customer

Question 8

calc the escrow liability that need to be reported on the balance sheet?

Answer 8

you start off with the Part 1

Escrow account liability 700,000
escrow payments received 1,580,000
2,280,000

Real estate taxes paid 1,720,000

                                                     50,000 Add:   escrow funds 	                        5000
                                                     45,000 Escrow Account Liability 	           605,000

Question 9

How long is the deferred revenue a liability?

Answer 9

until the service has been performed

Question 10

Intraperiod income tax allocation arises because

Answer 10

bc items that are included in the determination of taxable income may be presented in different sections of the financial statements

they are used for the following

Discontinued operations
Continued Operations
Other Comprehensive Income
Items debited or credited directly to equity

Question 11

What is temporary difference?

Answer 11

Difference between the carrying amount of an asset and liability in the balance sheet and its tax basis

Question 12

What will be the result of expense that are recognized in financial income this year and deductible next year?

Answer 12

Deferred tax asset

Question 13

What causes an increase in deferred Tax liabilities?

Answer 13

Both rent receivable and prepaid insurance increase deferred income tax liabilities

Question 14

When deferred tax liabilities arise when temporary differences in book and taxable income what happens to taxable amounts?

Answer 14

Future taxable amounts

Question 15

When deferred tax assets arise when temporary differences in book and taxable income what happens to taxable amounts?

Answer 15

future deductible amounts

Question 16

What causes a temporary diff?

Answer 16

the result of GAAP and tax basis of an asset or liability to differ

Also when Revenue and gains & Expenses and losses are used to calc net income in GAAP

Question 17

Calc the deferred liabilities?

Answer 17

to calc the deferred liabilities you need to know the dividends received of 30,000 x enacted rate 30% = 9,000

Question 18

Calc, the deferred tax asset?

Answer 18

When calc the deferred tax asset we need to understand and know that first we are looking for the future deductible amount

In this problem we have received an annual payment of 36,000 x 6 /12 = 18,000

Using the 18,000 x enacted rate 40% = 7,200 deferred tax asset for the year 4

Question 19

Calc, the deferred income tax liability

Answer 19

Financial Statement issued
300,000
600,000
850,000

1,750,000

Tax Returns for the same period

400,000
700,000

1,100,000 1,750,000 - 1,100,000 = 650,000

650,000 x 25% = 162,500

Question 20

What is recognized as deferred tax asset?

Answer 20

An operating loss carryforward is a deferred asset because it results in future deductible amounts

Immediate expensing of organization costs have future deductible so that cause it to have future deductible

Subscription revenue received in advanced is recognized for tax purpose when received but deferred for financial tax purposes

Question 21

Is receipt of municipal bonds interest deferred tax asset?

Answer 21

No because it’s a nontaxable item and that make it a permanent

Question 22

Adjustment for Revenue differences that are temporary

Answer 22

When we subtract revenue when recognized first under the GAAP however not on taxable income bc the tax law doesn’t allow us to recognize it as revenue yet even though we can recognize it under GAAP

When adding revenues the tax law wants to include that GAAP won’t allow it yet.

Question 23

Calc the deferred income tax liability?

Answer 23

Remember to use the enacted tax rates for the calc for deferred income tax liability and asset

So here we use the depreciation exceeded its book depreciation

25,000 x 35% = 8,750

Question 24

Calc, the effective tax rate?

Answer 24

Pretax Accounting Income 200,000
Municipal bonds income (20,000)
Life Insurance premiums 10,000

Taxable Income 190,000

Tax rate 30%

Tax Expense 57,000 / 200,000 pretax net income

Question 25

Examples of federal income tax liability?

Answer 25

Municipal Bond Interest
Tax exempt municipal bond interest
Excess of tax depreciation
Untaxed life insurance proceeds

Question 26

Calc, the current income tax expense?

Answer 26

we need the taxable income 650,000
income tax rate 30%

current income tax expense 195,000

Question 27

Calc, the deferred income tax expense?

Answer 27

by cumulative taxable temporary difference 70,000 x 30% = 21,000 + deferred tax asset 9000 = 30,000 Deferred income tax expense

Question 28

Calc the deferred tax expense in the income statement for the year?

Answer 28

To start off you need to deductible the depreciation expense

Part 1: Depreciation Deductibles

Tax Return 860,000
Accounting Records 570,000

Difference 290,000

Part 2: Credit Loss deductible

Accounting Records 250,000
Tax Return 220,000

Difference 30,000

Difference 290,000
Future Tax Rate 40%

Deferred tax liability 116,000

Temporary diff 30,000
Future Tax Rate 40%

= 12,000

116,000 - 12,000 = 104,000 Deferred tax expense

Question 29

In the statement of financial position deferred tax liabilities and assets are always classified as non current amounts?

Answer 29

Yes

Question 30

How are deferred taxes classified as non current amounts on the balance sheet?

Answer 30

Noncurrent liability

Question 31

Calc, the sales revenue and sales taxes payable?

Answer 31

To calc the Sales revenue

27,560 / 1.06 state taxes = 26,000 Sales Revenue

Step 2 calc the sales tax

27,560
26,000

1,560 Quarterly Sales Tax - 600 previously remitted = 960 Sales Taxes

Question 32

Calc, the deferred tax asset?

Answer 32

Annual rental payment 36,000 x 6 / 12 = 18,000
6/12 is because June 15 year 4 - Dec 31, year 4

So Step 2 is calc 18,000 x enacted rate 40% = 7,200 deferred tax asset

Question 33

The relationship between income tax currently payable and income tax expense is that tax currently payable

Answer 33

may differ from income tax expense

Question 34

Calc, the deferred tax liability at the year end balance sheet?

Answer 34

Reported depreciation 550,000 - 400,000 = 150,000

Year 4 50,000 x 30% = 15,000
Year 5. 50,000 x 25% = 12,500
Year 6 50,000 x 25% = 12,500

= 40,000 deferred income tax liability

Question 35

calc the current tax benefits realized using the depreciation instead of the straight line method?

Answer 35

To start off you need to calc the straight line depreciation

Step 1
So first we start off with equipment and calc the depreciation expense using the straight line method 100,000 / 10 useful life = 10,000 Depreciation expense

Step 2
We use the equipment cost of 100,000 multiply by 150% and 10%
100,000 x 150% x 10% = 15,000 STRAIGHT LINE RATE

Step 3
Here we subtract the depreciation expense and straight line rate

15,000 - 10,000 = 5,000
5000 x 30% = 1,500 depreciation tax purpose

Question 36

Calc, the federal income tax liability on december 31 balance sheet?

Answer 36

Step 1 - calc the current tax expense

Pretax account income 800,000
Untaxed gain (350,000)
excess of tax depre. 400,000
enacted tax rate 30%
Current tax expense 120,000

federal tax paid 70,000

federal income tax liability 50,000

Question 37

calc the interest payable on dec, 31 balance sheet?

Answer 37

given on the problem
100,000 x 12% x 3 / 12 = 3000

given on the problem
75,000 x 10% x 3 /12 = 1875

Total = 4875

Question 38

calc, the amount of loss that should be recognized on the redemption of the bond?

Answer 38

So here we first need to calc the carrying amount since we have both the discounts and premium discounts

500,000 par value
x (1-0.98) x 3 /15
= 2000

Bond issued cost 20,000 x 3/15 = 4000

New we can calc the new Carrying amount
500,000 - 2000 - 4000 = 494,000

Step 2 - calc the loss on extinguishment on debt

500,000 x 1.02 premium - 494,000

= 16,000

Question 39

Would revenue or expense result in deferred tax asset for the current year

Answer 39

expense causes a future deductible and where deferred asset is created

Question 40

Would revenue or expense result in deferred liability for the current year?

Answer 40

Revenues recognized in the financial income this year and taxable next year

Question 41

Under current generally accepted accounting principles which approach is used determine income tax

Answer 41

asset and liability approach

Question 42

calc, the income tax expense

Answer 42

permanent difference doesn’t cause a change deferred asset or liability

however, on deferred tax expense

280,000 taxable income x 30% = 84,000

Question 43

Calc, the stamp redemptions for dec 31, Y4?

Answer 43

Step 1 - The redemption cost 2,250,000 x 80% only were sold to license = 1,800,000

Step 2 - Liability for the redemption 6,000,000 + 1,800.000 - Cost of stamp 2,750,000 = 5,050,000 stamp redemptions

Question 44

Deferred revenues recorded by a company that provides services to customers?

Answer 44

deferred revenues is a liability until the service has been performed

Question 45

Calc, the deferred income tax liability of the gain?

Answer 45

Usually there are no gain on taxable items but the tax basis of the asset is reduced by the amount of unrecognized gain

450,000 - 300,000 = 150,000 x enacted rate 30% = 45,000 deferred income tax liability

Question 46

calc, the deferred liability that needs to be reported on the balance sheet?

Answer 46

Reported depreciation 550,000 - 400,000 = 150,000

Y4 50,000 x 30% = 15,000
Y5 50,000 x 25% = 12,500
Y5 50,000 x 25% = 12,500

                               40,000

Question 47

When there is a tax law change when would that change be reported for an example for September 15, Year 4 interim statement?

Answer 47

the tax law changed would be reported on the next enactment date so that would be September 30th Year 4

Question 48

Calc, the deduction of the bonus and income tax?

Answer 48

360,000 / 1.0 - .4 tax rate
360,000 / 0.60 = 600,000

600,000 10% = 60,000 bonus

Question 49

Calc, accrued liability for unemployment claims?

Answer 49

Acme had 5 employees x 10,000 eligible wages x 2% = 1,000

Question 50

Calc, deferred tax asset west should report on the balance sheet?

Answer 50

36,000 annual rental payment x 6 / 12 = 18,000

18,000 x 40% = 7,200 deferred tax asset

Question 51

Calc, the accrued salaries payable?

Answer 51

40,000
Salaries paid 390,000 420,000 expense

= 70,000 12/31/YR2

Question 52

Intraperiod income tax allocation arises because

Answer 52

items included in the determination of taxable income may be presented in different sections of the financial statements

Question 53

The relationship between income tax currently payable and income tax expense is that income tax currently payable

Answer 53

may be differ from income tax expense

Question 54

Usually associated with payable classified as accounts payable

Answer 54

Periodic payment of interest (NO)

Secured by collateral (NO)

Question 55

How are coupon transactions recorded?

Answer 55

As unearned revenue

Question 55

Calc, the deferred income tax liability?

Answer 55

12,000 taxable amounts
x 25% rate applicable

= 3,000

Question 55

Calc, the deferred income tax liability Dec 31, Year 3?

Answer 55

Depreciation reported of 550,000 - 400,000 = 150,000 / 3

Year 4 50,000 x 30% = 15,000
Year 5 50,000 x 25% = 12,500
Year 6 50,000 x 25% = 12,500

= 40,000 deferred income tax liability

Question 56

Calc, the accrued salaries payable?

Answer 56

Remember that accrued salaries payable is when the company owes money to their employee for work

Salaries Payable

Credit 40,000 accrued salaries payable
Credit 420,000 salaries expense during the year

Debit 390,000 Salaries payable

40,000 + 390,000 - 420,000 = 70,000 accrued salaries payable

Question 57

How is deferred Revenue affected when the gift cerfificates are sold?

Answer 57

It would decrease Redemption of certificates & Lapse of certificates are both decrease

Since there is no performance obligation there is no deferred revenue which decreases deferred revenue

Question 58

Calc, the current year financial statements?

Answer 58

800,000 retail sales
x 5%
= 40,000

4500 + 40,000 = 44500 - 39500 = 5000 sales tax payable

Question 59

The relationship between income tax currently payable and income expense is that income tax currently payable

Answer 59

may differ from income tax expense

Question 60

Calc, the income tax expense reported on the income statement ?

Answer 60

Remember we need to calc the current portion and deferred portion as well for tax expense

Question 61

Calc, the income tax expense reported on the income statement?

Answer 61

To calc, the income tax expense

we need to start off with the following

              Pretax - 5,000,000  Municipal bonds -  (600,000) Gain on land       -(1,000,000)

                             3,400,000 Tax rate                      x 40% 

Current tax exp 1,360,000

Next we need to calc the deferred portion bc the gain on land will cause a taxable income in the future

1,000,000 x 40% = 400,000

1,360,000 + 400,000 = 1,760,000 income statement

Question 62

Calc, the deferred income tax liability for the long term construction contracts?

Answer 62

Step 1 - add all the Completed contracts for Y3-Y4 400,000 + 700,000 = 1,100,000 TAX RETURN

Step 2 - add all the percentage of completion
Y3,Y4,Y5

300,000 + 600,000 + 850,000 = 1,750,000

1,750,000 - 1,100,000 = 650,000 X 25% = 162,500 Deferred tax liability

Question 63

Calc, the net income after bonus while the income tax was 360,000?

Answer 63

To start off we need to first calculate the following

360,000 / (1-0.40) = 600,000

600,000 x 10% = 60,000

Question 64

What is the primary objective of accounting for income taxes?

Answer 64

to see how much is need to be paid by tax payers and refunded to them as well. Also,

Deferred tax liability and assets for the future tax sequences of events recoginzied in the financial statements

Question 65

Calc, the sales tax payable for the sale?

Answer 65

Step 1 - Calc the sales tax of the sale

retail sale 8,000,000 x 5% collected state sales tax = 40,000

Step 2 -

begin sales tax balance 4,500 + 40,000 from sales - 39,500 from state sales tax mention on problem

= 5,000 sales tax payable

Question 66

Calc, the deferred revenue for the gift certificates redeemable for merchandise that expire 1 year after their issurance?

Answer 66

For Year 2 Sales 500,000 x 10% = 50,000

Unredeemed at 12/31 150,000 - 50,000 = 100,000 report deferred

Question 67

Calc, income tax expense?

Answer 67

Taxable income for current year 120,000 x 35% = 42,000 current

deferred income tax liability begin of year 55,000 - 50,000 deferred income tax liability end of year = 5,000

Deferred income tax asset begin of the year 10,000 - 16,000 deferred income tax asset end of year = 6,000

42,000 + 5000 deferred income tax - deferred income tax asset 6000 = 41,000 income tax expense

Answer 68

deferred revenue is recognized when performance obligation transferring a promised good and service to a customer (When this happens deferred revenue is increased)

Service revenue is NOT increased

Question 69

what causes deferred tax asset not to be recognized?

Answer 69

receipt of municipal bond interest

Question 70

Long term obligations that are callable by the creditor because of the violation of provision of the debt agreement at the balance sheet should be classified by