tHERE ARE 20 SIMPLE QUESTIONS IN TOTAL. pLEASE ANSWER IT SERIALLY.

acct -3312 iNTERMEDIATE ACCOUNTING 2

tAX AND cURRENT AND NON CURRENT LIABILTIES

The following information is used to answer questions 13,14 , and 15. At the end of YR05, the controller for Street Co. prepared a reconciliation between pretax financial income and taxable income as follows: 1 - The accrued warranty expense of \$200 represents the estimated amount of expense that will be incurred in future years to honor warranty work on YR05 sales. For tax purposes the warranty cost is not deductible until paid since the company is a cash-basis taxpayer. At the end of YR05 the company expects the actual cash payments to honor product warranties on YR05 sales will be as follows: (1) YR06 =$100, (2) YR07 =$100. On the December 31, YR05 balance sheet the company reports a current accrued warranty liability of $100 and a noncurrent accrued warranty liability of $100. 2 - At December 31, YR05 the company has earned and accrued $40 of interest income on a bond investment. This interest income will be received on January 15, YR06. For tax purposes, the interest will be taxed in the year received (YR06). On the December 31, YR05 balance sheet the accrued interest receivable is classified as a current asset. 3 - In December YR05 the company made credit sales of \$300. For tax purposes these sales are not reported in taxable income until the related receivables are collected. At the end of YR05 the company expects the actual cash collections related to these receivables will be as follows: (1) YR06 =$200, (2) YR07 =$100. On the December 31, YR05 balance sheet the company reports current accounts receivable of $200 and noncurrent accounts receivable of $100. Other Information 4. During the year the only journal entry made related to income taxes was to record a tax deposit. That entry was: July 1, YR05: Income Tax Payable 200 Cash 200 5. The Federal income tax rate is 40% for YR05, 30\% for YR06, and 20% for YR07 and YR08. 6. For the YR05 tax year the company earned a $50 investment tax credit related to the purchase of equipment. The firm has elected to use the 'flow-through' method for financial reporting purposes. 13. After all adjustments, the December 31, YR05 general ledger balance for the deferred tax asset account should be: a. $20dr. b. $50dr. c. $62dr. d. $92dr. e. none of the above. 14. After all adjustments, the December 31, YR05 general ledger balance for the deferred tax liability account should be: a. $20cr. b. $50cr. c. $62 cr. d. $92cr. e. none of the above. 15. After all adjustments, the December 31, YR05 general ledger balance for Federal income taxes payable should be: a. $94cr. b. $144cr. c. $294 cr. d. $344cr. e. none of the above. The following information pertains to an NOL incurred by Markus Inc. and is used to answer questions 17 - 20. a. Presented below is a schedule showing the taxable income (TI), pretax financial income (PFI), and Federal income taxes paid for each reporting year ended December 31. Note: The company has no permanent or temporary differences, and no deferred tax balances existed at 1-1-YR05. b. Assume that under current Federal income tax law corporations are permitted to carryback operating losses for 1 year and carryforward operating losses for 3 years. NOL deductions are limited to 100% of income in the year the deduction is claimed. The company has elected to first use the carryback provisions of the law. c. The table below discloses the taxable income the company expects to report for each year. Also presented are the tax rates for future years which are set forth under current tax law. 17. The YR05 journal entry to record the effect of the carryback election would be: Use the following information to answer questions \#7 and \#8. - On September 1, YR01, Ford Co. issued $1,000 of 6% bonds payable at 102 plus accrued interest. - The 2-year bonds are dated July 1, YR01, and mature on June 30, YR03. - Ford paid underwriter's fees of $40 to issue the bonds. These fees are netted against any related discount or premium. - The bonds pay interest every 6 months on January 1 and July 1 , - The bonds have an effective yield of 7.2%. 7. If the straight-line method is used to record amortization, the amount of amortization for the year ended December 31, YR01 is (rounded to the nearest penny, do not consider the sign \pm ): a. $2.73 b. $3.64 c. $7.50 d. $10.91 e. None of the answers provided are correct 8. If the effective interest method is used to record amortization, the amount of amortization for the year ended December 31, YR01 is (rounded to the nearest penny, do not consider the sign \pm ): a. $3.52 b. $5.28 c. $5.29 d. $6.19 e. None of the answers provided are correct Assume that on February 1, YR02 \$2,000 of the bonds were converted to common stock. On this date the market price of the bonds was 101 and the market price of the common stock was $45. Assume that the correct general ledger balances (on February 1, YR02) after all entries needed to bring the accounts up to date and after recording any payment of interest, but prior to the conversion were as follows (all accounts have their normal balances): Given these facts, the entry to record the conversion on February 1, YR02 would be (round final answer to nearest dollar): e. None of the answers provided is correct. 18. The YR05 journal entry to record the effect of the carryforward (before consideration of any valuation account) would be: 19. The YR05 journal entry to record a valuation account related to deferred tax balances would be: e. With future expected income in excess of the carryforward, no valuation account is needed. 20. Assume the correct answers to questions 1719 were as follows: Given these assumed facts, the YR05 income statement for the company should report the following amounts of current, deferred, and total tax expenselbenefit. Use the following information for questions #4,#5, and #6. On October 1, YR01 Subaru Inc. issued \$10,000 of 3\% convertible bonds payable at 104. Issuance costs totaled \$100. These 5year bonds are dated August 1, YR01 and mature on July 31, YR06. Each \$1,000 bond is convertible into \$5 par common stock at the rate of 10 common shares per bond. Bond interest is paid each August 1 and February 1. The company's yearend is December 31st, and the company's accounting policy is to accrue interest and amortize discount/premium once each year at December 31st in a single adjusting journal entry. Discount or premium are amortized on a straight-line basis. Bond issuance costs are recorded into any related bond payable discount or premium account. 4. The entry to record the issuance of the bonds on October 1, YR01 is (round final answer to nearest dollar): e. None of the answers provided is correct. 5. The adjusting journal entry at December 31, YR01 to record accrued interest and amortize discount/premium is (round final answer to nearest dollar): e. None of the answers provided is correct. 16. Assume that the YR08 tax return for General Motors Inc. correctly showed a 'total tax' of $200, no tax credits or penalties, and a 'tax due' of $80. Also assume that the correct deferred tax balances for YR08 were as follows: Based solely on this information, the total income tax expense to be reported on the company's income statement for the year ended December 31, YR08 is: a. $175 b. $225 c. $265 d. $275 e. none of the above. 9. The reason that income taxes assessed on taxable income for a particular reporting year cannot be used as total tax expense in the financial records is due to the effect of: a. temporary differences between financial and tax records. b. permanent differences between financial and tax records. c. both permanent and temporary differences between financial and tax records. d. differences between tax laws and tax rates for the current year versus future years. e. None of the answers provided is correct. 10. GAAP requires that deferred tax assets and deferred tax liabilities be classified on the balance sheet as: a. current or noncurrent based on the expected reversal date of the related future deductible (or future taxable) amount. b. current or noncurrent based on the balance sheet classification of the related asset or liability. c. current or noncurrent based on the expected date of the final originating amount. d. current amounts. e. none of the above. 11. Gateway Co. has pretax financial income (PFI) of $10 for the year ended December 31, YR05. Your review of the accounting and tax records has identified the following differences between PFI and taxable income (TI): 1. Depreciation expense for financial purposes is $8 while depreciation for tax purposes is $10, 2. During YR05 the company earned $4 of revenue related to an installment sale. This revenue will not be taxable until future years when the revenue is collected in cash. 3. At December 31, YR05 the company has $3 of accrued wages payable. Because the company is a cash-basis taxpayer, these wages will not be deducted for tax purposes until they are paid (early YR06). Hence, they will be reported and deducted on the tax return for the year ended December 31, YR06. Given these facts, taxable income (TI) for the year ended December 31, YR05 is: a. $5 b. $7 c. $9 d. $15 e. none of the above. 12. Kroger Inc. purchased a freezer on July 1, YR07, for $300. The freezer has an estimated 3-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and accelerated depreciation is used for tax purposes. In the year of acquisition, Kroger recorded 1/2 year of depreciation in the financial records. A comparison of financial (book) and tax depreciation appears below. Assuming an income tax rate of 20\% for YR07, and a 30\% tax rate for YR08-YR10, the deferred tax balance that should be reflected on the December 31, YR07 balance sheet is: a. DTA of $15 b. DTA of $30 c. DTL of $30 d. DTL of $45 e. none of the above. The following information is used to answer questions 13,14 , and 15. At the end of YR05, the controller for Street Co. prepared a reconciliation between pretax financial income and taxable income as follows: 1 - The accrued warranty expense of \$200 represents the estimated amount of expense that will be incurred in future years to honor warranty work on YR05 sales. For tax purposes the warranty cost is not deductible until paid since the company is a cash-basis taxpayer. At the end of YR05 the company expects the actual cash payments to honor product warranties on YR05 sales will be as follows: (1) YR06 =$100, (2) YR07 =$100. On the December 31, YR05 balance sheet the company reports a current accrued warranty liability of $100 and a noncurrent accrued warranty liability of $100. 2 - At December 31, YR05 the company has earned and accrued $40 of interest income on a bond investment. This interest income will be received on January 15, YR06. For tax purposes, the interest will be taxed in the year received (YR06). On the December 31, YR05 balance sheet the accrued interest receivable is classified as a current asset. 3 - In December YR05 the company made credit sales of \$300. For tax purposes these sales are not reported in taxable income until the related receivables are collected. At the end of YR05 the company expects the actual cash collections related to these receivables will be as follows: (1) YR06 =$200, (2) YR07 =$100. On the December 31, YR05 balance sheet the company reports current accounts receivable of $200 and noncurrent accounts receivable of $100. Other Information 4. During the year the only journal entry made related to income taxes was to record a tax deposit. That entry was: July 1, YR05: Income Tax Payable 200 Cash 200 5. The Federal income tax rate is 40% for YR05, 30\% for YR06, and 20% for YR07 and YR08. 6. For the YR05 tax year the company earned a $50 investment tax credit related to the purchase of equipment. The firm has elected to use the 'flow-through' method for financial reporting purposes. 13. After all adjustments, the December 31, YR05 general ledger balance for the deferred tax asset account should be: a. $20dr. b. $50dr. c. $62dr. d. $92dr. e. none of the above. 14. After all adjustments, the December 31, YR05 general ledger balance for the deferred tax liability account should be: a. $20cr. b. $50cr. c. $62 cr. d. $92cr. e. none of the above. 15. After all adjustments, the December 31, YR05 general ledger balance for Federal income taxes payable should be: a. $94cr. b. $144cr. c. $294 cr. d. $344cr. e. none of the above. The following information pertains to an NOL incurred by Markus Inc. and is used to answer questions 17 - 20. a. Presented below is a schedule showing the taxable income (TI), pretax financial income (PFI), and Federal income taxes paid for each reporting year ended December 31. Note: The company has no permanent or temporary differences, and no deferred tax balances existed at 1-1-YR05. b. Assume that under current Federal income tax law corporations are permitted to carryback operating losses for 1 year and carryforward operating losses for 3 years. NOL deductions are limited to 100% of income in the year the deduction is claimed. The company has elected to first use the carryback provisions of the law. c. The table below discloses the taxable income the company expects to report for each year. Also presented are the tax rates for future years which are set forth under current tax law. 17. The YR05 journal entry to record the effect of the carryback election would be: Use the following information to answer questions \#7 and \#8. - On September 1, YR01, Ford Co. issued $1,000 of 6% bonds payable at 102 plus accrued interest. - The 2-year bonds are dated July 1, YR01, and mature on June 30, YR03. - Ford paid underwriter's fees of $40 to issue the bonds. These fees are netted against any related discount or premium. - The bonds pay interest every 6 months on January 1 and July 1 , - The bonds have an effective yield of 7.2%. 7. If the straight-line method is used to record amortization, the amount of amortization for the year ended December 31, YR01 is (rounded to the nearest penny, do not consider the sign \pm ): a. $2.73 b. $3.64 c. $7.50 d. $10.91 e. None of the answers provided are correct 8. If the effective interest method is used to record amortization, the amount of amortization for the year ended December 31, YR01 is (rounded to the nearest penny, do not consider the sign \pm ): a. $3.52 b. $5.28 c. $5.29 d. $6.19 e. None of the answers provided are correct Assume that on February 1, YR02 \$2,000 of the bonds were converted to common stock. On this date the market price of the bonds was 101 and the market price of the common stock was $45. Assume that the correct general ledger balances (on February 1, YR02) after all entries needed to bring the accounts up to date and after recording any payment of interest, but prior to the conversion were as follows (all accounts have their normal balances): Given these facts, the entry to record the conversion on February 1, YR02 would be (round final answer to nearest dollar): e. None of the answers provided is correct. 18. The YR05 journal entry to record the effect of the carryforward (before consideration of any valuation account) would be: 19. The YR05 journal entry to record a valuation account related to deferred tax balances would be: e. With future expected income in excess of the carryforward, no valuation account is needed. 20. Assume the correct answers to questions 1719 were as follows: Given these assumed facts, the YR05 income statement for the company should report the following amounts of current, deferred, and total tax expenselbenefit. Use the following information for questions #4,#5, and #6. On October 1, YR01 Subaru Inc. issued \$10,000 of 3\% convertible bonds payable at 104. Issuance costs totaled \$100. These 5year bonds are dated August 1, YR01 and mature on July 31, YR06. Each \$1,000 bond is convertible into \$5 par common stock at the rate of 10 common shares per bond. Bond interest is paid each August 1 and February 1. The company's yearend is December 31st, and the company's accounting policy is to accrue interest and amortize discount/premium once each year at December 31st in a single adjusting journal entry. Discount or premium are amortized on a straight-line basis. Bond issuance costs are recorded into any related bond payable discount or premium account. 4. The entry to record the issuance of the bonds on October 1, YR01 is (round final answer to nearest dollar): e. None of the answers provided is correct. 5. The adjusting journal entry at December 31, YR01 to record accrued interest and amortize discount/premium is (round final answer to nearest dollar): e. None of the answers provided is correct. 16. Assume that the YR08 tax return for General Motors Inc. correctly showed a 'total tax' of $200, no tax credits or penalties, and a 'tax due' of $80. Also assume that the correct deferred tax balances for YR08 were as follows: Based solely on this information, the total income tax expense to be reported on the company's income statement for the year ended December 31, YR08 is: a. $175 b. $225 c. $265 d. $275 e. none of the above. 9. The reason that income taxes assessed on taxable income for a particular reporting year cannot be used as total tax expense in the financial records is due to the effect of: a. temporary differences between financial and tax records. b. permanent differences between financial and tax records. c. both permanent and temporary differences between financial and tax records. d. differences between tax laws and tax rates for the current year versus future years. e. None of the answers provided is correct. 10. GAAP requires that deferred tax assets and deferred tax liabilities be classified on the balance sheet as: a. current or noncurrent based on the expected reversal date of the related future deductible (or future taxable) amount. b. current or noncurrent based on the balance sheet classification of the related asset or liability. c. current or noncurrent based on the expected date of the final originating amount. d. current amounts. e. none of the above. 11. Gateway Co. has pretax financial income (PFI) of $10 for the year ended December 31, YR05. Your review of the accounting and tax records has identified the following differences between PFI and taxable income (TI): 1. Depreciation expense for financial purposes is $8 while depreciation for tax purposes is $10, 2. During YR05 the company earned $4 of revenue related to an installment sale. This revenue will not be taxable until future years when the revenue is collected in cash. 3. At December 31, YR05 the company has $3 of accrued wages payable. Because the company is a cash-basis taxpayer, these wages will not be deducted for tax purposes until they are paid (early YR06). Hence, they will be reported and deducted on the tax return for the year ended December 31, YR06. Given these facts, taxable income (TI) for the year ended December 31, YR05 is: a. $5 b. $7 c. $9 d. $15 e. none of the above. 12. Kroger Inc. purchased a freezer on July 1, YR07, for $300. The freezer has an estimated 3-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and accelerated depreciation is used for tax purposes. In the year of acquisition, Kroger recorded 1/2 year of depreciation in the financial records. A comparison of financial (book) and tax depreciation appears below. Assuming an income tax rate of 20\% for YR07, and a 30\% tax rate for YR08-YR10, the deferred tax balance that should be reflected on the December 31, YR07 balance sheet is: a. DTA of $15 b. DTA of $30 c. DTL of $30 d. DTL of $45 e. none of the above