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| 1 | |
ASC 740 applies only to accounting for income taxes. |
| | A) | True |
| | B) | False |
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| 2 | |
A deductible temporary difference that arises in the current year also is referred to as an unfavorable difference. |
| | A) | True |
| | B) | False |
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| 3 | |
The focus of ASC 740 is on the balance sheet. |
| | A) | True |
| | B) | False |
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| 4 | |
The excess of tax depreciation over book depreciation during the year usually gives rise to a permanent difference. |
| | A) | True |
| | B) | False |
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| 5 | |
The tax effects of most permanent differences show up in a company's reconciliation of its effective tax rate in the income tax note to the financial statements. |
| | A) | True |
| | B) | False |
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| 6 | |
Tax-exempt interest will create a deductible temporary difference. |
| | A) | True |
| | B) | False |
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| 7 | |
A valuation allowance only reduces a deferred tax asset. |
| | A) | True |
| | B) | False |
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| 8 | |
Under ASC 740, an uncertain tax position must pass the recognition test before it is measured for balance sheet purposes. |
| | A) | True |
| | B) | False |
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| 9 | |
Which of the following taxes would not be accounted for under ASC 740? |
| | A) | Value-added taxes paid to the Dutch government. |
| | B) | Income taxes paid to the state of Michigan |
| | C) | Income taxes paid to the City of San Francisco |
| | D) | Income taxes paid to the U.S. government |
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| 10 | |
Which of the following items does not result in a permanent difference? |
| | A) | Disallowed portion of meals and entertainment expenditure |
| | B) | Capitalized costs in inventory under §263A |
| | C) | Tax exempt life insurance proceeds |
| | D) | Tax credit for research and development |
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| 11 | |
Abbot Corporation reported pretax book income of $600,000 in 2013. Included in the computation were favorable temporary differences of $150,000, unfavorable temporary differences of $50,000, and an unfavorable permanent differences of $40,000. Assuming a tax rate of 34%, the corporation's current income tax expense or benefit for 2013 would be: |
| | A) | $251,600 |
| | B) | $204,000 |
| | C) | $183,600 |
| | D) | $156,400 |
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| 12 | |
Greenview Corporation reported pretax book income of $800,000 in 2013. During the current year, the reserve for warranties increased by $25,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, the corporation incurred a non-deductible premium of $10,000 related to an insurance policy on the life of one of its officers. Assuming a tax rate of 34%, the corporation's net deferred income tax expense or benefit for 2013 would be |
| | A) | A net deferred tax expense of $25,500 |
| | B) | A net deferred tax benefit of $25,500 |
| | C) | A net deferred tax expense of $28,900 |
| | D) | A net deferred tax benefit of $28,900 |
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| 13 | |
Jones Company reported pretax book income of $1,000,000 in 2013. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $120,000, and favorable permanent differences of $60,000. Assuming a tax rate of 34%, the company's deferred income tax expense or benefit for 2013 would be: |
| | A) | A net deferred tax expense of $20,400 |
| | B) | A net deferred tax benefit of $20,400 |
| | C) | A net deferred tax expense of $6,800 |
| | D) | A net deferred tax benefit of $6,800 |
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| 14 | |
Evergreen Company reported pretax book income of $700,000 in 2013. Included in the computation were favorable temporary differences of $150,000, unfavorable temporary differences of $200,000, and unfavorable permanent differences of $80,000. Book equivalent of taxable income is: |
| | A) | $700,000 |
| | B) | $780,000 |
| | C) | $750,000 |
| | D) | $830,000 |
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| 15 | |
Which of the following statements best describes the process for evaluating a company's uncertain tax positions? |
| | A) | ASC 740 requires a company to complete step 2 (measurement) in its evaluation of its uncertain tax positions only if it is more-likely-than-not that that its tax position will be sustained on its merits. |
| | B) | ASC 740 allows a company to record a tax benefit from an uncertain tax position if it is more than remote the benefit will be sustained on audit by a tax authority |
| | C) | ASC 740 requires a company to complete a two-step analysis every time it evaluates its uncertain tax positions. |
| | D) | ASC 740 allows a company to take into account the probability of audit by a tax authority in step 1 (recognition) in its evaluation of its uncertain tax positions. |
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