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AC 302 AC/302 AC302 Unit 3 Exam (Kaplan)


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AC 302 Unit 3 Exam (Kaplan)

Munoz Corp.'s books showed pretax financial income of $2,700,000 for the year ended December 31, 2015. In the computation of federal income taxes, the following data were considered: 

Lyons Company deducts insurance expense of $126,000 for tax purposes in 2014, but the expense is not yet recognized for accounting purposes. In 2015, 2016, and 2017, no insurance expense will be deducted for tax purposes, but $42,000 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 $108,000 at the end of 2014. There were no deferred taxes at the beginning of 2014.

What is the amount of the deferred tax liability at the end of 2014? 

A deferred tax liability is classified on the balance sheet as either a current or a noncurrent liability. The current amount of a deferred tax liability should generally be 

Taxable income of a corporation 

Horner Corporation has a deferred tax asset at December 31, 2015 of $160,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted

tax rates are as follows: 40% for 2012–2014; 35% for 2015; and 30% for 2016 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: 

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income? 

Deferred taxes should be presented on the balance sheet 

Eckert Corporation's partial income statement after its first year of operations is as


On January 1, 2015, Gore, Inc. purchased a machine for $1,350,000 which will be depreciated $135,000 per year for financial statement reporting purposes. For income tax reporting, Gore elected to expense $150,000 and to use straight-line depreciation which will allow a cost recovery deduction of $120,000 for 2015. 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, 2015? 

On January 1, 2015, Piper Corp. purchased 40% of the voting common stock of Betz, Inc. and appropriately accounts for its investment by the equity method. During 2015, Betz reported earnings of $720,000 and paid dividends of $240,000. 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 

Mathis Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income Estimated litigation expense Installment sales
Taxable income

$ 800,000 2,000,000 (1,600,000)

$ 1,200,000 

A reconciliation of Gentry Company's pretax accounting income with its taxable income for 2014, its first year of operations, is as follows:

Pretax accounting income
Excess tax depreciation
Taxable income
The excess tax depreciation will result in equal net taxable amounts in each of the next

three years. Enacted tax rates are 40% in 2014, 35% in 2015 and 2016, and 30% in 2017. The total deferred tax liability to be reported on Gentry's balance sheet at December 31, 2014, is 

Larsen Corporation reported $100,000 in revenues in its 2014 financial statements, of which $33,000 will not be included in the tax return until 2015. The enacted tax rate is 40% for 2014 and 35% for 2015. What amount should Larsen report for deferred income tax liability in its balance sheet at December 31, 2014? 

Recognizing a valuation allowance for a deferred tax asset requires that a company 

Cross Company reported the following results for the year ended December 31, 2014, its

first year of operations:

2014 Income (per books before income taxes) $ 1,500,000

Taxable income 

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, 2015, balance sheet includes a deferred tax liability of $600,000 arising from the difference between book and tax treatment of the installment sales, it should also include installment accounts receivable of 

Lehman Corporation purchased a machine on January 2, 2013, for $3,000,000. The machine has an estimated 5-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and the following MACRS amounts will be deducted for tax purposes:

2013 $600,000 2016 2014 960,000 2017 2015 576,000 2018

$345,000 345,000 174,000 

In 2014, Krause Company accrued, for financial statement reporting, estimated losses on disposal of unused plant facilities of $2,400,000. The facilities were sold in March 2015 and a $2,400,000 loss was recognized for tax purposes. Also in 2014, 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 2014 and 2015, and that Krause paid $780,000 in income taxes in 2014, the amount reported as net deferred income taxes on Krause's balance sheet at December 31, 2014, should be a 

Rowen, Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions:

Received rent from Jane, Co. for 2016
Municipal bond income
Depreciation for tax purposes in excess of book depreciation Installment sales revenue to be collected in 2016

$64,000 $80,000

$40,000 $108,000

For 2015, what is the amount of income taxes payable for Rowen, Inc.? 

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income? 

Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income $1,500,000 Estimated litigation expense 2,000,000 

Hopkins Co. at the end of 2014, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income Estimated litigation expense Extra depreciation for taxes Taxable income

$1,500,000 2,000,000 (3,000,000)

$ 500,000 

Khan, Inc. reports a taxable and financial loss of $1,950,000 for 2015. Its pretax financial income for the last two years was as follows:

2013 $900,000 2014 1,200,000

The amount that Khan, Inc. reports as a net loss for financial reporting purposes in 2015, assuming that it uses the carryback provisions, and that the tax rate is 30% for all periods affected, is 

Ferguson Company has the following cumulative taxable temporary differences: 12/31/15 12/31/14

$2,700,000 $1,920,000

The tax rate enacted for 2015 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2015 is $4,800,000 and there are no permanent differences. Ferguson's pretax financial income for 2015 is 

Operating income and tax rates for C.J. Company’s first three years of operations were

as follows:
Income _

  1. 2014  $300,000

  2. 2015  ($750,000)

  3. 2016  $1,260,000

Enacted tax rate 35%

Assuming that C.J. Company opts to carryback its 2015 NOL, what is the amount of income taxes payable at December 31, 2016? 

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