Solved by verified expert :Chapter 19: Income Taxes
1. Which of the following creates a permanent
difference between financial income and taxable income?
a.
Interest received on
municipal bonds
b.
Completed contract method
of recognizing construction revenue
c.
Unearned rent revenue
d.
Accelerated cost recovery
on plant and equipment
2.
Which of the following is the most likely item to result in a deferred tax
asset?
a.
Using accelerated
depreciation for tax purposes but straight-line depreciation for accounting
purposes
b.
Using the
completed-contract method of recognizing construction revenue tax purposes,
but using percentage-of-completion method for financial reporting purposes
c.
Prepaid expenses
d.
Unearned revenues
3.
Dodger Corporation reported a loss for both financial reporting purposes and
tax reporting purposes of $231,000 in 2011. For financial reporting purposes,
Dodger reported income before taxes for years 2008-2010 as listed below:
2008
……………………….
$
66,000
2009
……………………….
99,000
2010
……………………….
132,000
Assuming Dodger’s tax rate is
30 percent in all periods, and that the company uses the carryback provisions,
what amount should appear in Dodger’s statements for financial reporting purposes
as a net loss in 2011?
a.
$0
b.
$69,300
c.
$161,700
d.
$234,300
4. In
2011 Taggart Inc. reported pretax financial income of $750,000. Included in
that pretax financial income was $80,000 of nontaxable life insurance proceeds
received as a result of the death of an officer; $100,000 of warranty expenses
accrued but unpaid as of December 31, 2011; and $40,000 of life insurance
premiums for a policy for an officer. Assuming that no income taxes were
previously paid during the year and assuming an income tax rate of 35 percent,
the amount of income taxes payable on December 31, 2011, would be
a.
$255,500.
b.
$283,500.
c.
$311,500.
d.
$213,500.
5. An
example of a “deductible temporary difference” occurs when
a.
the installment sales
method is used for tax purposes, but the accrual method of recognizing sales
revenue is used for financial reporting purposes.
b.
accelerated depreciation is
used for tax purposes but straight-line depreciation is used for accounting
purposes.
c.
warranty expenses are
recognized on the accrual basis for financial reporting purposes but
recognized as the warranty conditions are met for tax purposes.
d.
the completed-contract
method of recognizing construction revenue is used for tax purposes, but the
percentage-of-completion method is used for financial reporting purposes.
6. A
deferred tax liability arising from the use of an accelerated method of
depreciation for tax purposes and the straight-line method for financial
reporting purposes would be classified on the balance sheet as
a.
a current liability.
b.
a noncurrent liability.
c.
a current liability for the
portion of the temporary difference reversing within a year and a noncurrent
liability for the remainder.
d.
an offset to the
accumulated depreciation reported on the balance sheet.
7. The
Roberts Corporation reported a $75,000 operating loss in 2011. In the preceding
three years, Roberts reported the following income before taxes and paid the
indicated income taxes:
Year
Income
Taxes
Tax Rate
2008
$40,000
$12,000
30%
2009
28,000
9,800
35%
2010
52,000
18,200
35%
The amount of tax benefit to
be reported in 2011 arising from the tax carryback provisions of the current
tax code would be
a.
$40,000.
b.
$28,000.
c.
$21,800.
d.
$26,250.
8.
9.
Chapter 20:Pensions and Postretirement
Benefits
10. Alternative methods exist for the
measurement of the pension obligation (liability). Which measure requires the
use of future salaries in its computation?
a. Vested benefit obligation
b. Accumulated benefit obligation
c. Projected benefit obligation
d. Restructured benefit obligation
11. The
computation of pension expense includes all the following except
a. service cost component measured using current
salary levels.
b. interest on projected benefit obligation.
c. expected return on plan assets.
d. All of these are included in the computation.
12. A
corporation has a defined-benefit plan. A pension liability will result at the
end of the year if the
a. projected benefit obligation exceeds the fair
value of the plan assets.
b. fair value of the plan assets exceeds the
projected benefit obligation.
c. amount of employer contributions exceeds the
pension expense.
d. amount of pension expense exceeds the amount
of employer contributions.
13. When
a company amends a pension plan, for accounting purposes, prior service costs
should be
a. treated as a prior period adjustment because
no future periods are benefited.
b. amortized in accordance with procedures used
for income tax purposes.
c. recorded in other comprehensive income (PSC).
d. reported as an expense in the period the plan
is amended.
14. Kraft,
Inc. sponsors a defined-benefit pension plan. The following data relates to the
operation of the plan for the year 2013.
Service cost $ 250,000
Contributions
to the plan 220,000
Actual
return on plan assets 180,000
Projected
benefit obligation (beginning of year) 2,400,000
Fair
value of plan assets (beginning of year) 1,600,000
The
expected return on plan assets and the settlement rate were both 10%. The
amount of pension expense reported for 2013 is
a. $250,000.
b. $310,000.
c. $330,000.
d. $490,000.
