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1.

Question :

(TCO B) As a result of differences between depreciation for financial reporting purposes and tax purposes, the financial reporting basis of Noor Co.'s sole depreciable asset, acquired in Year 1, exceeded its tax basis by $250,000 at December 31, Year 1. This difference will reverse in future years. The enacted tax rate is 30% for Year 1, and 40% for future years. Noor has no other temporary differences. In its December 31, Year 1, balance sheet, how should Noor report the deferred tax effect of this difference? As an asset of $75,000. As an asset of $100,000. As a liability of $75,000.

Student Answer:

Instructor Explanation:

As a liability of $100,000. CPA-00785 Becker Explanation Choice "d" is correct, as a deferred tax liability of $100,000, since tax depreciation exceeds book depreciation. The 40% tax rate for the period(s) the difference is expected to reverse should be used.

Points Received: Comments: Question 2.Question :

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(TCO B) Mobe Co. reported the following operating income (loss) for its first three years of operations: Year 1 $ 300,000 Year 2 (700,000) Year 3 1,200,000 For each year, there were no deferred income taxes (before Year 1), and Mobe's effective income tax rate was 30%. In its Year 2 income tax return, Mobe elected the two year carry back of the loss. In its Year 3 income statement, what amount should Mobe report as total income tax expense?

Student Answer:

$120,000 $150,000 $240,000

$360,000 CPA-00789 Becker Explanation Instructor Explanation: Choice "d" is correct, $360,000 total income tax expense for Year 3. Year 2 DR: DR: CR: Year 3 Inc. Tax Refund Rec. ($300,000 30%) Deferred Tax Asset ($400,000 30%) Income Tax Benefit $90,000 120,000 $210,000

DR: CR: CR:

Income Tax Expense Income Tax Payable Deferred Tax Asset

$360,000 $240,000 120,000

Points Received: Comments: Question 3.Question :

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(TCO B) Hut Co. has temporary taxable differences that will reverse during the next year and add to taxable income. These differences relate to noncurrent assets. Under U.S. GAAP, deferred income taxes based on these temporary differences should be classified in Hut's balance sheet as a: Current asset. Noncurrent asset. Current liability. Noncurrent liability.

Student Answer:

CPA-00779 Becker Explanation Instructor Explanation: Choice "d" is correct. Hut's temporary taxable differences add to taxable income,

making them deferred tax liabilities. Under U.S. GAAP, deferred tax liabilities are classified in the balance sheet based on the classification of the related assets. In this case, the related asset is a noncurrent asset, so the deferred tax liability is classified as a noncurrent liability. Choice "a" is incorrect. Hut's temporary taxable differences add to taxable income, making them deferred tax liabilities, not deferred tax assets. Choice "b" is incorrect. Hut's temporary taxable differences add to taxable income, making them deferred tax liabilities, not deferred tax assets. Choice "c" is incorrect. Under U.S. GAAP, deferred tax liabilities are classified in the balance sheet based on the classification of the related assets. In this case, the related asset is a noncurrent asset.

Points Received: Comments: Question 4.Question :

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(TCO B) Venus Corp.'s worksheet for calculating current and deferred income taxes for Year 1 follows: Year 1 Pretax income $1,400 Temporary differences: Depreciation (800) Warranty costs 400 Taxable income $ 1,000 Loss carryback (1,000) Loss carryforward $ 0 Year 2 Year 3

(1,200) (100) (1,300) 1,000 300 $ 0

$ 2,000 (300) 1,700 (300) $ 1,400

Enacted rate

30%

30%

25%

Venus had no prior deferred tax balances. In its Year 1 income statement, what amount should Venus report as: Current income tax expense?

Student Answer:

$420 $350 $300 $0

Instructor Explanation:

CPA-00808 Becker Explanation Choice "c" is correct, $300 current income tax expense (taxable income of $1,000 x 30%).

Points Received: Comments: Question 5.Question :

8 of 8

(TCO B) Stone Co. began operations in Year 1 and reported $225,000 in income before income taxes for the year. Stone's Year 1 tax depreciation exceeded its book depreciation by $25,000. Stone also had nondeductible book expenses of $10,000 related to permanent differences. Stone's tax rate for Year 1 was 40%, and the enacted rate for years after Year 1 is 35%. In its December 31, Year 1, balance sheet, what amount of deferred income tax liability should Stone report? $8,750 $10,000 $12,250

Student Answer:

$14,000 CPA-00806 Becker Explanation Instructor Explanation:Choice "a" is correct, $8,750 deferred tax liability at 12/31. Book Tax depreciation in excess of book 0 Tax rate for years after Year 1 - When the diff reverses Deferred tax liability at 12/31 Tax 25,000 Temporary difference 25,000 x 35% 8,750

Points Received: Comments:

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