CH 19 TAX PROBLEM MCQ

MULTIPLE CHOICE—CPA Adapted

95. Munoz Corp.'s books showed pretax financial income of $1,800,000 for the year ended December 31, 2013. In the computation of federal income taxes, the following data were considered:

Gain on an involuntary conversion	$780,000
(Munoz has elected to replace the property within the statutory
period using total proceeds.)
Depreciation deducted for tax purposes in excess of depreciation
deducted for book purposes	120,000
Federal estimated tax payments, 2013	150,000
Enacted federal tax rate, 2013	30%

What amount should Munoz report as its current federal income tax liability on its December 31, 2013 balance sheet?

a. $120,000

b. $156,000

c. $270,000

d. $306,000

96. Haag Corp.'s 2013 income statement showed pretax accounting income of $1,250,000. To compute the federal income tax liability, the following 2013 data are provided:

Income from exempt municipal bonds	$ 50,000
Depreciation deducted for tax purposes in excess of depreciation
deducted for financial statement purposes	100,000
Estimated federal income tax payments made	250,000
Enacted corporate income tax rate	30%

What amount of current federal income tax liability should be included in Hagg's December 31, 2013 balance sheet?

a. $ 80,000

b. $110,000

c. $125,000

d. $330,000

97. On January 1, 2013, Gore, Inc. purchased a machine for $900,000 which will be depreciated $90,000 per year for financial statement reporting purposes. For income tax reporting, Gore elected to expense $100,000 and to use straight-line depreciation which will allow a cost recovery deduction of $80,000 for 2013. Assume a present and future enacted income tax rate of 30%. What amount should be added to Gore's deferred income tax liability for this temporary difference at December 31, 2013?

a. $54,000

b. $30,000

c. $27,000

d. $24,000

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Accounting for Income Taxes 19 - 25

98. On January 1, 2013, Piper Corp. purchased 40% of the voting common stock of Betz, Inc. and appropriately accounts for its investment by the equity method. During 2013, Betz reported earnings of $540,000 and paid dividends of $180,000. Piper assumes that all of Betz's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 30%. Ignore the dividend-received deduction. Piper's current enacted income tax rate is 25%. The increase in Piper's deferred income tax liability for this temporary difference is

a. $108,000.

b. $90,000.

c. $64,800.

d. $43,200.

99. Foltz Corp.'s 2012 income statement had pretax financial income of $250,000 in its first year of operations. Foltz uses an accelerated cost recovery method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions for depreciation over the five-year life of the assets acquired in 2012, and the enacted tax rates for 2012 to 2016 are as follows:

	Book Over (Under) Tax	Tax Rates
2012	$(50,000)	35%
2013	(65,000)	30%
2014	(15,000)	30%
2015	60,000	30%
2016	70,000	30%

There are no other temporary differences. In Foltz's December 31, 2012 balance sheet, the noncurrent deferred income tax liability and the income taxes currently payable should be

	Noncurrent Deferred	Income Taxes
	Income Tax Liability	Currently Payable
a.	$39,000	$50,000
b.	$39,000	$70,000
c.	$15,000	$60,000
d.	$15,000	$70,000

100. Didde Corp. prepared the following reconciliation of income per books with income per tax return for the year ended December 31, 2013:

Book income before income taxes	$1,500,000
Add temporary difference
Construction contract revenue which will reverse in 2014	160,000
Deduct temporary difference
Depreciation expense which will reverse in equal amounts in
each of the next four years	(640,000)
Taxable income	$1,020,000

Didde's effective income tax rate is 34% for 2013. What amount should Didde report in its 2013 income statement as the current provision for income taxes?

a. $54,400

b. $346,800

c. $510,000

d. $564,400

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19 - 26 Test Bank for Intermediate Accounting, Fourteenth Edition

101. In its 2012 income statement, Cohen Corp. reported depreciation of $1,480,000 and interest revenue on municipal obligations of $280,000. Cohen reported depreciation of $2,200,000 on its 2012 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next three years. Cohen's enacted income tax rates are 35% for 2012, 30% for 2013, and 25% for 2014 and 2015. What amount should be included in the deferred income tax liability in Hertz's December 31, 2012 balance sheet?

a. $192,000

b. $248,000

c. $300,000

d. $350,000

102. Dunn, Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Installment income of $1,500,000 will be collected in the following years when the enacted tax rates are:

	Collection of Income	Enacted Tax Rates
2012	$150,000	35%
2013	300,000	30%
2014	450,000	30%
2015	600,000	25%

The installment income is Dunn's only temporary difference. What amount should be included in the deferred income tax liability in Dunn's December 31, 2012 balance sheet?

a. $375,000

b. $427,500

c. $472,500

d. $525,000

103. For calendar year 2012, Kane Corp. reported depreciation of $1,200,000 in its income statement. On its 2012 income tax return, Kane reported depreciation of $1,800,000. Kane's income statement also included $225,000 accrued warranty expense that will be deducted for tax purposes when paid. Kane's enacted tax rates are 30% for 2012 and 2013, and 24% for 2014 and 2015. The depreciation difference and warranty expense will reverse over the next three years as follows:

	Depreciation Difference	Warranty Expense
2013	$240,000	$	45,000
2014	210,000		75,000
2015	150,000		105,000
	$600,000	$	225,000

These were Kane's only temporary differences. In Kane's 2012 income statement, the deferred portion of its provision for income taxes should be

a. $200,700.

b. $112,500.

c. $101,700.

d. $109,800.

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Accounting for Income Taxes 19 - 27

104. Wright Co., organized on January 2, 2012, had pretax accounting income of $640,000 and taxable income of $1,600,000 for the year ended December 31, 2012 The only temporary difference is accrued product warranty costs which are expected to be paid as follows:

2013	$320,000
2014	160,000
2015	160,000
2016	320,000

The enacted income tax rates are 35% for 2012, 30% for 2013 through 2015, and 25% for 2016. If Wright expects taxable income in future years, the deferred tax asset in Wright's December 31, 2012 balance sheet should be

a. $192,000.

b. $224,000.

c. $272,000.

d. $336,000.