Acc 557 Week 2 Quiz

In: Business and Management

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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?

Student Answer: As an asset of $75,000. As an asset of $100,000. As a liability of $75,000. As a liability of $100,000. Instructor Explanation: 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: 8 of 8 Comments:

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

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