CHAPTER 19 ACCOUNTING FOR INCOME TAXES

| November 9, 2018

62.
Cross
Company reported the following results for the year ended December 31, 2012,
its first year of operations:

2012

Income
(per books before income taxes)

$

1,250,000

Taxable income

2,000,000

The
disparity between book income and taxable income is attributable to a temporary
difference which will reverse in 2013. What should Cross record as a net
deferred tax asset or liability for the year ended December 31, 2012, assuming
that the enacted tax rates in effect are 40% in 2012 and 35% in 2013?

a.
$300,000
deferred tax liability
b.
$262,500
deferred tax asset
c.
$300,000
deferred tax asset
d.
$262,500
deferred tax liability

63.
In
2012, Krause Company accrued, for financial statement reporting, estimated
losses on disposal of unused plant facilities of $1,800,000. The facilities
were sold in March 2013 and a $1,800,000 loss was recognized for tax purposes.
Also in 2012, Krause paid $100,000 in premiums for a two-year life insurance
policy in which the company was the beneficiary. Assuming that the enacted tax
rate is 30% in both 2012 and 2013, and that Krause paid $780,000 in income
taxes in 2012, the amount reported as net deferred income taxes on Krause’s
balance sheet at December 31, 2012, should be a
a.
$510,000
asset.
b.
$270,000
asset.
c.
$270,000
liability.
d.
$540,000
asset.

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19 – 16 Test Bank for Intermediate Accounting,
Fourteenth Edition
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64.
Horner
Corporation has a deferred tax asset at December 31, 2013 of $120,000 due to
the recognition of potential tax benefits of an operating loss carryforward.
The enacted tax rates are as follows: 40% for 2010–2012; 35% for 2013; and 30%
for 2014 and thereafter. Assuming that management expects that only 50% of the
related benefits will actually be realized, a valuation account should be
established in the amount of:
a.
$60,000

b.
$24,000

c.
$21,000

d.
$18,000

65.
Watson
Corporation prepared the following reconciliation for its first year of
operations:

Pretax
financial income for 2013

$1,400,000

Tax
exempt interest

(100,000)

Originating temporary difference

(300,000)

Taxable income

$1,000,000

The temporary difference will reverse
evenly over the next two years at an enacted tax rate of 40%. The enacted tax
rate for 2013 is 28%. What amount should be reported in its 2013 income
statement as the current portion of its provision for income taxes?
a.
$280,000

b.
$400,000

c.
$392,000

d.
$560,000

Use the following information for
questions 66 and 67.

Mitchell Corporation prepared the
following reconciliation for its first year of operations:

Pretax financial income for 2013

$
900,000

Tax exempt interest

(75,000)

Originating temporary difference

(125,000)

Taxable income

$700,000

The
temporary difference will reverse evenly over the next two years at an enacted
tax rate of 40%. The enacted tax rate for 2013 is 35%.

66.
What
amount should be reported in its 2013 income statement as the deferred portion
of income tax expense?

a.
$50,000
debit
b.
$90,000
debit
c.
$50,000
credit
d.
$70,000
credit

67.
In
Mitchell’s 2013 income statement, what amount should be reported for total
income tax expense?
a.
$325,000

b.
$315,000

c.
$295,000

d.
$245,000

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Accounting for Income Taxes 19 – 17
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68.
Ewing
Company sells household furniture. Customers who purchase furniture on the installment
basis make payments in equal monthly installments over a two-year period, with
no down payment required. Ewing’s gross profit on installment sales equals 40%
of the selling price of the furniture.

For
financial accounting purposes, sales revenue is recognized at the time the sale
is made. For income tax purposes, however, the installment method is used.
There are no other book and income tax accounting differences, and Ewing’s
income tax rate is 30%.

If Ewing’s
December 31, 2013, balance sheet includes a deferred tax liability of $450,000
arising from the difference between book and tax treatment of the installment
sales, it should also include installment accounts receivable of
a.
$3,750,000.

b.
$1,500,000.

c.
$1,125,000.

d.
$450,000.

69.
Ferguson
Company has the following cumulative taxable temporary differences:

12/31/13

12/31/12

$1,800,000

$1,280,000

The tax
rate enacted for 2013 is 40%, while the tax rate enacted for future years is
30%. Taxable income for 2013 is $3,200,000 and there are no permanent
differences. Ferguson’s pretax financial income for 2013 is

a.
$5,000,000.

b.
$3,720,000.

c.
$2,680,000.

d.
$1,400,000.

Use the following information for
questions 70 through 72.

Lyons
Company deducts insurance expense of $105,000 for tax purposes in 2012, but the
expense is not yet recognized for accounting purposes. In 2013, 2014, and 2015,
no insurance expense will be deducted for tax purposes, but $35,000 of
insurance expense will be reported for accounting purposes in each of these
years. Lyons Company has a tax rate of 40% and income taxes payable of $90,000
at the end of 2012. There were no deferred taxes at the beginning of 2012.

70.
What
is the amount of the deferred tax liability at the end of 2012?

a.
$42,000

b.
$36,000

c.
$15,000

d.
$0

71.
What
is the amount of income tax expense for 2012?

a.
$132,000

b.
$126,000

c.
$105,000

d.
$90,000

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