Deferred Tax Paper 2

1


Selected financial information for Windham, Inc., for the year just ended is shown below.
Pretax income $5,000,000
Interest received on municipal bonds 600,000
Gain on the sale of land reported this year but not taxable until next year 1,000,000
Tax rate for all years 40%
Beginning balances:
Income taxes payable -0-
Deferred tax liability $50,000
"The total income tax expense reported on Windham’s income statement for the year just ended should be"






2

Justification for the method of determining periodic deferred tax expense is based on the concept of






3

Among the items reported on Cord, Inc.’s income statement for the year ended December 31, year 1, were the following:
Payment of penalty $ 5,000
Insurance premium on life of an officer with Cord as owner and beneficiary 10,000
Temporary differences amount to






4

Temporary differences arise when revenues are taxable
After they are recognized in financial income
Before they are recognized in financial income






5

Which of the following differences would result in future taxable amounts?






6

Dunn Co.’s year 1 income statement reported $90,000 income before provision for income taxes. To compute the provision for federal income taxes, the following year 1 data are provided:
Rent received in advance $16,000
Income from exempt municipal bonds 20,000
Depreciation deducted for income tax purposes in excess of depreciation reported for
financial statements purposes 10,000
Enacted corporate income tax rate 30%
If the alternative minimum tax provisions are ignored, what amount of current federal income tax liability should be reported in Dunn’s December 31, year 1 balance sheet?






7

Pine Corp.’s books showed pretax income of $800,000 for the year ended December 31, year 1. In the computation of federal income taxes, the following data were considered:
Gain on an involuntary conversion $350,000
(Pine has elected to replace the property within the statutory period using total proceeds.) Depreciation deducted for the tax purposes in
excess of depreciation deducted for book purposes 50,000
Federal estimated tax payments, year 1 70,000
Enacted federal tax rates, year 1 30%
What amount should Pine report as its current federal income tax liability on its December 31, year 1 balance sheet?






8

For the year ended December 31, year 1, Tyre Co. reported pretax financial statement income of $750,000. Its taxable income was $650,000. The difference is due to accelerated depreciation for income tax purposes. Tyre’s effective income tax rate is 30%, and Tyre made estimated tax payments during year 1 of $90,000. What amount should Tyre report as current income tax expense for year 1?






9

On June 30, year 1, Ank Corp. prepaid a $19,000 premium on an annual insurance policy. The premium payment was a tax deductible expense in Ank’s year 1 cash basis tax return. The accrual basis income statement will report a $9,500 insurance expense in year 1 and year 2. Ank’s income tax rate is 30% in year 1 and 25% thereafter. In Ank’s December 31, year 1 balance sheet, what amount related to the insurance should be reported as a deferred income tax liability?






10

For the year ended December 31, year 1, Tyre Co. reported pretax financial statement income of $750,000. Its taxable income was $650,000. The difference is due to accelerated depreciation for income tax purposes. Tyre’s effective income tax rate is 30%, and Tyre made estimated tax payments during year 1 of $90,000. What amount should Tyre report as current income tax expense for year 1?






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