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ACC 305 Quiz 3 Chapter 19

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ACC 305 Quiz 3 Chapter 19 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 $ 800,000 Estimated litigation expense 2,000,000 Installment sales (1,600,000) Taxable income $ 1,200,000 The estimated litigation expense of $2,000,000 will be deductible in 2016 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $800,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $800,000 current and $800,000 noncurrent. The income tax rate is 30% for all years. The deferred tax asset to be recognized is Based on the following information, compute 2015 taxable income for South Co. assuming that its pre-tax accounting income for the year ended December 31, 2015 is $345,000. Future taxable Temporary difference (deductible) amount Installment sales $288,000 Depreciation $ 90,000 Unearned rent ($300,000) 3. In its 2014 income statement, Cohen Corp. reported depreciation of $1,850,000 and interest revenue on municipal obligations of $350,000. Cohen reported depreciation of $2,750,000 on its 2014 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 2014, 30% for 2015, and 25% for 2016 and 2017. What amount should be included in the deferred income tax liability in Hertz’s December 31, 2014 balance sheet? 4. 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? 5. 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 Extra depreciation for taxes (3,000,000) Taxable income $ 500,000 The estimated litigation expense of $2,000,000 will be deductible in 2015 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each of the next three years. The income tax rate is 30% for all years. The deferred tax liability to be recognized is Current Noncurrent 6. Which of the following is false regarding accounting for deferred taxes under IFRS? 7. Major reasons for disclosure of deferred income tax information is (are) 8. The deferred tax expense is the 9. Alice, Inc. has the following deferred tax assets at December 31, 2014: Amount Related to $180,000 Rent revenue collected in advance related to 2015 $75,000 Warranty liability, expected to be paid in 2015 $255,000 Accrued liability related to a lawsuit expected to settle in 2018 What amount would Alice, Inc. report as a current deferred tax asset under IFRS and under U.S. GAAP? 10. Deferred tax amounts that are related to specific assets or liabilities should be classified as current or noncurrent based on 11. With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when 12. Operating income and tax rates for C.J. Company’s first three years of operations were as follows: Income Enacted tax rate 2014 $300,000 35% 2015 ($750,000) 30% 2016 $1,260,000 40% Assuming that C.J. Company opts to carryback its 2015 NOL, what is the amount of income taxes payable at December 31, 2016? 13. At the beginning of 2015, Pitman Co. purchased an asset for $1,200,000 with an estimated useful life of 5 years and an es

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