Accounting 100C midterm Exam 2014KnowledgeCats
Andy McDowell Co. establishes a $100 million liability at the end of 2014 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2015. Also, at the end of 2014, the company has $50 million of temporary differences due to excess depreciation for tax purposes, $7 million of which will reverse in 2015.
The enacted tax rate for all year is 40%, and the company pays taxes of $64 million on $160 million of taxable income in 2014. McDowell expects to have taxable income in 2015.
i)Determine the deferred tax asset & deferred tax liability to be reported at the end of 2015.
a. 60,000,000; 20,000,000
b. 20,000,000; 40,000,000
c. 40,000,000; 60,000,000
d. 40,000,000; 20,000,000
______________________income is reported on the income statement and is often referred to as income before income taxes. ______________________is reported on the tax return and is the amount upon which a company’s income taxes payable are computed.
a. Pretax financial income; book
b. Taxable income; pretax financial income
c. Book; taxable income
d. Pretax financial income; Taxable Income
Complete the following statements by filling in the blanks.
a)In a period in which a taxable temporary difference reverses, the reversal will cause taxable income to be __________________ (less than, greater than) pretax financial income.
b)If a $76,000 balance in Deferred Tax Asset was computed by use of a 40% rate, the underlying cumulative temporary difference amounts to $____________________.
c)Deferred taxes ________________(are, are not) recorded to amount for permanent differences.
d)if a taxable temporary difference originates in 2014, it will cause taxable income for 2014 to be _________ (less than, greater than) pretax financial income for 2014.
e)If total tax expense is $50,000 and deferred tax expense is $65,000, then the current portion of the expense computation is referred to as current tax _______________(expense, benefit) of $__________.
a. (a)greater than;(b)$190,000;(c)are ;(d)greater than; (e)benefit;$15,000
b. (a)greater than;(b)$190,000;(c)are not;(d)less than; (e)benefit;$15,000
c. (a)greater than;(b)$190,000;(c)are ;(d)less than; (e)expense;$15,000
d. (a)less than;(b)$190,000;(c)are ;(d)less than; (e)expense;$15,000
TMR Inc. reports the follows the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss). The tax rate listed were all enacted by beginning of 2012.
Year Pretax Income (loss) Tax Rate
2012 $120,000 40%
2013 $90,000 40%
2014 (280,000) 45%
2015 120,000 45%
What are the journal entries for years 2012-2015 to record income tax expense (benefit) and income taxes payable (refundable), and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-half of the benefits of the loss carryforward will not be realized.
For 2012: For 2013:
Income tax expense 48,000 Income tax expense 36,000
Income taxes payable 48,000 Income taxes payable 36,000
For 2012: For 2013:
Income tax expense 36,000 Income tax expense 48,000
Income taxes payable 36,000 Income taxes payable 48,000
c. For 2012: For 2013:
Income tax expense 48,000 Income tax expense 54,000
Income taxes payable 48,000 Deferred tax asset 31,500
Income taxes payable 22,500
For 2012: For 2013:
Income tax expense 15,750 Income tax expense 36,000
Income taxes payable 15,750 Income taxes payable 36,000
Leasing Co. leases a new machine that has a cost and fair value of $95,000 to Buyer Co. on a 3-year noncancelable contract. Buyer Co. agrees to assume all risks of normal ownership including such costs as insurance, taxes, and maintenance. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2014, Leasing Co. expects to earn a 9% return on its investment. The annual rentals are payable on each December 31.
Complete the amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved.
Schedule of Interest and Amortization
Rent Receipt/Payment Interest Revenue/Expense Reduction of Principal Receivable/Liability
1/1/14 0.00 0.00 0.00 $__a_____
12/31/14 $__b_____ $__c_____ $28,980 $66,020
a. (a) 95,000; (b) $34,432; (c) $8,550
b. (a) 95,000; (b) $8,550; (c) $37,530
c. (a) 95,000; (b) $37,530; (c) $8,550
d. (a) 95,000; (b) $37,530; (c) $5,942
AAA Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2014 in which no benefits were paid.
-Actuarial present value of future benefits earned by employees for services rendered in 2014 amounted to $56,000.
-The company’s funding policy requires a contribution to the pension trustee amounting to $145,000 for 2014.
-As of Jan 1, 2014, the company had a projected benefit obligation of $900,000, an accumulated benefit obligation of $800,000, and a debit balance of $400,000 in accumulated OCI (PSC). The fair value of pension plan assets amounted to $600,000 at the beginning of the year. The actual and expected return on plan assets was $54,000. The settlement rate was 9%. No gains or losses occurred in 2014 and no benefits were paid.
-Amortization of prior service cost was $50,000 in 2014. Amortization of net gains or loss was required in 2014.
Determine the pension expense (amounts of components of pension expense should be recognized by the company in 2014).
Amnon Corporation reported the following for 2011:
Service cost $366
Interest on P.B.B. 737
Return on plan assets 593
Amortization of prior service cost 13
Amortization of net loss 154
Computer the 2011 pension expense.
At December 31, 2014, Appleton Corp had a deferred tax liability of $25,000. At December 31, 2015, the deferred tax liability is $42,000. The corporation’s 2015 current tax expense is $48,000. What amount should Appleton Corp report as total 2015 income tax expense?
JKF Corporation owns equipment that cost $80,000 and has a useful life of 8 years with no salvage value. On January 1, 2014, JKF leases the equipment to DHI Corp for one year with one rental payment of $15,000 on January 1. What is the 2014 depreciation expense?
Book basis of depreciable assets for Metcalf Co. is $900,000, and the tax basis is $700,000 at the end of 2015. The enacted tax rate is 34% for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2015.
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Andy McDowell Co. establishes a $100 million liability at the end of 2014 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing …7 years ago