83) The tax effect of a net operating loss (NOL) carryback usually:
A) Results in a current receivable at the end of the NOL year.
B) Is subject to a valuation allowance.
C) Is reflected as deferred tax asset at the end of the NOL year.
D) Is reflected as a deferred tax liability at the end of the NOL year.
84) Recognizing tax benefits in a loss year due to a net operating loss carryforward requires:
A) Creating a tax refund receivable.
B) Note disclosure only.
C) Creating a deferred tax asset.
D) Creating a deferred tax liability.
85) In its first four years of operations Peridot Jewelers reported the following operating income
(loss) amounts:
2015
$
150,000
2016
100,000
2017
(425,000
)
2018
450,000
There were no other items affecting deferred income taxes in any year. In 2017, Peridot elected
to carry back its operating loss. The enacted income tax rate was 40%. In its 2018 income
statement, what amount should Peridot report as income tax expense?
A) $80,000.
B) $110,000.
C) $170,000.
D) $180,000.
Income tax expense (to balance)
180,000
Deferred tax asset
Income tax payable [($450,000 – 175,000) × 40%]
110,000
86) The Kelso Company had the following operating results:
Income (loss)
Tax rate
Income tax
30,000
35
%
10,500
first year of operations
45,000
30
%
13,500
(60,000
)
30
%
0
What is the income tax refund receivable?
A) $18,000.
B) $19,500.
C) $18,750.
D) $24,000.
87) In 2018, 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
2016 when the tax rate was 40%. Bodily’s income tax payable for 2018 would be:
A) $54,000.
B) $42,000.
C) $90,000.
D) $72,000.
88) In its first three years of operations Sharp Chairs reported the following operating income
(loss) amounts:
2016
$
1,350,000
2017
(3,150,000
)
2018
5,400,000
There were no deferred income taxes in any year. In 2017, Sharp elected to carry back its
operating loss. The enacted income tax rate was 35% in 2016 and 40% thereafter. In its 2018
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.
89) In its first four years of operations Peridot Jewelers reported the following operating income
(loss) amounts:
2015
$
150,000
2016
100,000
2017
(425,000
)
2018
450,000
There were no other deferred income taxes in any year. In 2017, Peridot elected to carry back its
operating loss. The enacted income tax rate was 40%. In its 2018 income statement, what amount
should Peridot report as current income tax payable?
A) $80,000.
B) $110,000.
C) $170,000.
D) $180,000.
90) According to GAAP for accounting for income taxes, when a company has a net operating
loss carryforward:
A) A deferred tax liability is recognized.
B) A receivable is created.
C) A deferred tax equity account is created.
D) A deferred tax asset is recorded along with any applicable valuation allowance.
91) Puritan Corp. reported the following pretax accounting income and taxable income for its
first three years of operations:
2017
$
350,000
2018
(600,000
)
2019
700,000
Puritan’s tax rate is 40% for all years. Puritan elected a loss carryback.
As of December 31, 2018. Puritan was certain that it would recover the full tax benefit of the
NOL that remained after the operating loss carryback.
What did Puritan report on December 31, 2018, as the deferred tax asset for the NOL
carryforward?
A) $280,000.
B) $200,000.
C) $100,000.
D) $0.
92) Puritan Corp. reported the following pretax accounting income and taxable income for its
first three years of operations:
2017
$
350,000
2018
(600,000
)
2019
700,000
Puritan’s tax rate is 40% for all years. Puritan elected a loss carryback.
As of December 31, 2018. Puritan was certain that it would recover the full tax benefit of the
NOL that remained after the operating loss carryback.
What would be the net loss in 2018 reported in Puritan’s income statement?
A) $360,000.
B) $240,000.
C) $460,000.
D) $500,000.
Operating loss
$
(600,000
)
Tax benefit from loss carryback $350,000 × 40%
140,000
$350,000) × 40%
93) Puritan Corp. reported the following pretax accounting income and taxable income for its
first three years of operations:
2017
$
350,000
2018
(600,000
)
2019
700,000
Puritan’s tax rate is 40% for all years. Puritan elected a loss carryback.
As of December 31, 2018. Puritan was certain that it would recover the full tax benefit of the
NOL that remained after the operating loss carryback.
What would Puritan report as net income for 2019?
A) $620,000.
B) $420,000.
C) $270,000.
D) $460,000.
Accounting income
$
700,000
Tax expense*
280,000
Net income
$
420,000
Income tax expense (to balance)
280,000
Deferred tax asset ($250,000 × 40%)
100,000
Income tax payable [($700,000 – 250,000) × 40%]
180,000
94) Before considering a net operating loss carryforward of $80 million, Fama Corporation
reported $200 million of pretax accounting and taxable income in the current year. The income
tax rate for all previous years was 40%. On January 1 of the current year, a new tax law was
enacted, reducing the rate to 30% effective immediately. Fama’s income tax payable for the
current year would be:
A) $48 million.
B) $28 million.
C) $60 million.
D) $36 million.
95) Reliable Corp. had a pretax accounting income of $30 million this year. This included the
collection of $40 million of life insurance proceeds when several key executives died in a plane
crash. Temporary differences for the current year netted out to zero. Reliable has had a 40% tax
rate and taxable income of $120 million over the previous two years and plans to elect a net
operating loss carryback for tax purposes. In the current year financial statements, Reliable
would report:
A) Net income of $34 million.
B) A tax benefit of $10 million.
C) Net income of $26 million.
D) A deferred tax asset of $4 million.
96) Theodore Enterprises had the following pretax income (loss) over its first three years of
operations:
2016
$
500,000
2017
(900,000
)
2018
1,500,000
For each year there were no deferred income taxes and the tax rate was 30%. In its 2017 tax
return, Theodore elected a net operating loss carryback. No valuation account was deemed
necessary for the deferred tax asset as of December 31, 2017. What was Theodore’s income tax
expense for 2018?
A) $450,000.
B) $330,000.
C) $270,000.
D) $180,000.
Income tax expense (to balance)
450,000
Deferred tax asset ($400,000 × 30%)
120,000
Income tax payable [($1,500,000 – 400,000) × 30%]
330,000
97) Clinton Corp. had the following pretax income (loss) over its first three years of operations:
2016
$
1,200,000
2017
(900,000
)
2018
1,500,000
For each year there were no deferred income taxes and the tax rate was 40%. For its 2017 tax
return, Clinton did not elect a net operating loss carryback. No valuation account was deemed
necessary for the deferred tax asset as of December 31, 2017. What was Clinton’s income tax
expense in 2018?
A) 600,000.
B) 480,000.
C) 240,000.
D) 160,000.
Income tax expense (to balance)
600,000
Deferred tax asset ($900,000 × 40%)
360,000
Income tax payable [($1,500,000 – 900,000) × 40%]
240,000
98) The Bell Company had the following operating results:
Year
Income (loss)
Tax rate
Income tax
2015
40,000
35
%
14,000
2016
20,000
35
%
7,000
2017
50,000
40
%
20,000
2018
(60,000
)
40
%
0
What is the income tax refund receivable?
A) $27,000.
B) $24,000.
C) $23,000.
D) $21,000.
99) For reporting purposes, current deferred tax assets and current deferred tax liabilities for the
same company and tax jurisdiction are:
A) Netted against one another and shown as a net current asset or liability in the balance sheet.
B) Reported separately in the balance sheet.
C) Reflected only in the notes to the financial statements.
D) Combined with noncurrent deferred tax assets and noncurrent deferred tax liabilities in the
balance sheet to show a single net noncurrent amount.
100) Financial statement disclosure of the components of income tax expense:
A) Must be made on the face of the income statement.
B) Usually is included in the disclosure notes.
C) Is not necessary when only permanent differences exist.
D) Must include the amount of cash paid for taxes.
101) At December 31, 2018, Moonlight Bay Resorts had the following deferred income tax
items:
Deferred tax asset of $54 million related to a current liability
Deferred tax asset of $36 million related to a noncurrent liability
Deferred tax liability of $120 million related to a noncurrent asset
Deferred tax liability of $72 million related to a current asset
Moonlight Bay should report in its December 31, 2018, balance sheet a:
A) Noncurrent deferred tax asset of $90 million and a non-current deferred tax liability of $192
million.
B) Current deferred tax liability of $18 million.
C) Noncurrent deferred tax asset of $84,000 and a non-current deferred tax liability of $45
million.
D) Noncurrent deferred tax liability of $102 million.
102) Due to differences between depreciation reported in the income statement and depreciation
deducted for tax purposes, Lucas Corp. has $2 million in temporary differences that will increase
taxable income next year. Assuming that Lucas has no other temporary differences, deferred
income taxes should be reported in this year’s ending balance sheet as a:
A) Current deferred asset.
B) Noncurrent deferred tax liability.
C) Current deferred tax liability.
D) Noncurrent deferred tax asset.
103) A reconciliation of pretax financial statement income to taxable income is shown below for
Fieval Industries for the year ended December 31, 2018, its first year of operations. The income
tax rate is 40%.
Pretax accounting income (income statement)
$
300,000
Interest revenue on municipal securities
(15,000
)
Warranty expense in excess of deductible amount
25,000
Depreciation in excess of financial statement amount
(70,000
)
Taxable income (tax return)
$
240,000
What amount(s) should Fieval report related to deferred income taxes in its 2018 balance sheet?
A) Current deferred tax asset of $10,000 and noncurrent deferred tax liability of $28,000.
B) Noncurrent deferred tax liability of $18,000.
C) Current deferred tax asset of $4,000 and noncurrent deferred tax liability of $28,000.
D) Noncurrent deferred tax liability of $24,000.
104) A reconciliation of pretax financial statement income to taxable income is shown below for
Chan Inc. for the year ended December 31, 2018, its first year of operations. The income tax rate
is 40%.
Pretax accounting income (income statement)
$
500,000
Inventory impairments in excess of deductible amount
40,000
Depreciation in excess of financial statement amount
(120,000
)
Taxable income (tax return)
$
420,000
The inventory impairments relate to Chan’s Columbian tax return. The depreciation relates to
Chan’s U.S. tax return. What amount(s) should Chan report related to deferred income taxes in
its 2018 balance sheet?
A) Current deferred tax asset of $16,000 and noncurrent deferred tax liability of $48,000.
B) Noncurrent deferred tax liability of $32,000.
C) Noncurrent deferred tax asset of $16,000 and noncurrent deferred tax liability of $48,000.
D) Noncurrent deferred tax asset of $32,000.
105) A reconciliation of pretax financial statement income to taxable income is shown below for
See Shipping for the year ended December 31, 2018, its first year of operations. The income tax
rate is 40%.
Pretax accounting income (income statement)
$
600,000
Installment income taxable upon receipt next year
(30,000
)
Warranty expense in excess of deductible amount
5,000
Tax depreciation in excess of income statement amount
(20,000
)
Taxable income (tax return)
$
555,000
What amount should See report as a noncurrent item related to deferred income taxes in its 2018
balance sheet?
A) Deferred income tax asset of $18,000.
B) Deferred income tax liability of $20,000.
C) Deferred income tax liability of $45,000.
D) Deferred income tax liability of $18,000.
106) On its tax return at the end of the current year Webnet Inc. has $6 million of tax
depreciation in excess of depreciation in its income statement. A disclosure note reveals that $1
million of the $6 million difference will reverse itself next year, and the remainder will reverse
over the next 4 years. In the absence of other temporary differences, in the balance sheet at the
end of the current year Webnet would report:
A) Both a current deferred tax asset and a noncurrent deferred tax asset.
B) A noncurrent deferred tax asset.
C) Both a current deferred tax liability and a noncurrent deferred tax liability.
D) A noncurrent deferred tax liability.
107) Madison Company has taken a position in its tax return to claim a tax credit of $60 million
(direct reduction in taxes payable) and has determined that its sustainability is “more likely than
not,” based on its technical merits. The tax credit would be a direct reduction in current taxes
payable. Madison believes the likelihood that a $60 million, $36 million, or $12 million tax
benefit will be sustained is 25%, 30%, and 45%, respectively. Madison’s taxable income is $510
million for the year. Its effective tax rate is 40%. What is Madison’s income tax expense for the
year?
A) $24 million.
B) $144 million.
C) $168 million.
D) $204 million.
108) Information for Hobson Corp. for the current year ($ in millions):
Income from continuing operations before tax
$
150
Loss on discontinued operation (pretax)
30
Temporary differences (all related to operating income):
Accrued warranty expense in excess of expense
included in operating income
10
Depreciation deducted on tax return in excess of
depreciation expense
25
Permanent differences (all related to operating income):
Nondeductible portion of entertainment expense
5
The applicable enacted tax rate for all periods is 40%.
How much tax expense on income from continuing operations would be reported in Hobson’s
income statement?
A) $56 million.
B) $60 million.
C) $62 million.
D) $50 million.
109) Information for Hobson Corp. for the current year ($ in millions):
Income from continuing operations before tax
$
150
Loss on discontinued operation (pretax)
30
Temporary differences (all related to operating income):
Accrued warranty expense in excess of expense
included in operating income
10
Depreciation deducted on tax return in excess of
depreciation expense
25
Permanent differences (all related to operating income):
Nondeductible portion of entertainment expense
5
The applicable enacted tax rate for all periods is 40%.
What should Hobson report as income from continuing operations?
A) $94 million.
B) $90 million.
C) $88 million.
D) $150 million.
Income from continuing operations before tax
$
150
Income tax expense *:
62
Income from continuing operations
$
88
110) Information for Hobson Corp. for the current year ($ in millions):
Income from continuing operations before tax
$
150
Loss on discontinued operation (pretax)
30
Temporary differences (all related to operating income):
Accrued warranty expense in excess of expense
included in operating income
10
Depreciation deducted on tax return in excess of
depreciation expense
25
Permanent differences (all related to operating income):
Nondeductible portion of entertainment expense
5
The applicable enacted tax rate for all periods is 40%.
What should Hobson report as net income?
A) $70 million.
B) $72 million.
C) $75 million.
D) $88 million.
Income from continuing operations before tax
$
150
Income tax expense *:
62
Income from continuing operations
$
88
Loss on discontinued operation (net of $12 tax benefit)
18
Net income
$
70