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Acg exam 3 review 1

Acg exam 3 review 1

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ACG EXAM 3

1. Which of the following creates a deferred tax asset?

a. Investment expenses to incurred to obtain tax-exempt income.

b. Estimated expenses from post-retirement employee benefits.

c. An unrealized gain from recording investments at fair value.

d. Prepaid insurance.

2. Which of the following created a deferred tax liability due to its respective treatment on

the books versus the tax return?

a. Revenues reported on the income statement now, but on tax return later.

b. Expenses reported on the income statement now, but on the tax return later.

c. Revenues reported on the tax return now, but on the income statement later.

d. None of the above.

3. Bubba Gump received cash of $70,000 for magazine subscription from its customers in

2020. Of this total, $23,000 of magazines will not be delivered by Bubba Gump until

2021. Bubba Gump’s enacted tax rate is 30% for 2020, and 25% for 2021. What amount

should Bubba Gump report in its 2020 balance sheet for deferred tax assets?

a. $11,750

b. $14,100

c. $6,900

d. $5,750

4. During the current year, GarbageX Inc. had $80 million in pretax book income, which

included:

-warranty expense of $7 million reported on the income statement; $2 millions of

warranty claims were paid claims during the year.

-$20 million in depreciation expense on the income statement; MACRS depreciation

amounted to $35 million on the tax return.

There were no other temporary or permanent differences. What was GarbageX’ income

tax payable for the current year, assuming a tax rate of 25%?

a. 14.5 million

b. 15.75 million

c. 25.2 million

d. 17.5 million

5. A deferred tax asset represents a:

a. Future tax refund

b. Future cash collection

c. Future income tax benefit

d. Future amount of money to be paid out

6. In 2020, Toll LLC had reported a deferred tax asset of $90 million with no valuation

allowance. At December 31,2021, the account balances of Toll showed a deferred tax

asset of $120 million before assessing the need for a valuation allowance and income

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taxes payable of $80 million. Toll determined that I was more likely than not that 30% of

the deferred tax asset ultimately would not be realized. Toll made no estimated tax

payments during 2021. What amount should Toll report as income tax expense in its

2021 income statement?

a. $80 million

b. $116 million

c. $50 million

d. $86 million

7. A valuation allowance:

a. Is created if taxable income is anticipated to be sufficient to realize the future tax

benefit

b. Is used if it is more likely than not that all of the deferred tax asset will be

realized.

c. Will be added to the ending balance of the deferred tax asset account.

d. Is revaluated at the end of each reporting period to determine if it should be

adjusted up or down

8. Use the information below to answer #8-9

Brine, Inc. reported $500,000 pretax accounting income for 2018, its first year of

operations. Included in the income statement was an installment sale of property in the

amount of $80,000. However, for tax purposes, Brine Inc. reported the income in the

year the cash was collected. Cash collected on the installment sale was $50,000 in 2019

and $30,000 in 2020. In 2018, Brine, Inc. also had $20,000 in cash proceeds from an

executive’s life insurance contract. The income tax rate is 35%.

What is the income tax expense in the 2018 income statement?

a. $140,000

b. $168,000

c. $161,000

d. $189,000

9. Brine, Inc. reported $500,000 pretax accounting income for 2018, its first year of

operations. Included in the income statement was an installment sale of property in the

amount of $80,000. However, for tax purposes, Brine Inc. reported the income in the

year the cash was collected. Cash collected on the installment sale was $50,000 in 2019

and $30,000 in 2020. In 2018, Brine, Inc. also had $20,000 in cash proceeds from an

executive’s life insurance contract. The income tax rate is 35%.

Assume pretax accounting income is $610,000 in 2019. There are no other additional

permanent or temporary differences.

What is the tax expense for 2019?

a. $213,500

b. $241,500

c. $231,000

d. $248,500

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ACG EXAM 3 1. Which of the following creates a deferred tax asset? a. Investment expenses to incurred to obtain tax-exempt income. b. Estimated expenses from post-retirement employee benefits. c. An unrealized gain from recording investments at fair value. d. Prepaid insurance. 2. Which of the following created a deferred tax liability due to its respective treatment on the books versus the tax return? a. Revenues reported on the income statement now, but on tax return later. b. Expenses reported on the income statement now, but on the tax return later. c. Revenues reported on the tax return now, but on the income statement later. d. None of the above. 3. Bubba Gump received cash of $70,000 for magazine subscription from its customers in 2020. Of this total, $23,000 of magazines will not be delivered by Bubba Gump until 2021. Bubba Gump’s enacted tax rate is 30% for 2020, and 25% for 2021. What amount should Bubba Gump report in its 2020 balance sheet for deferred tax assets? a. $11,750 b. $14,100 c. $6,900 d. $5,750 4. During the current year, GarbageX Inc. had $80 million in pretax book income, which included: -warranty expense of $7 million reported on the income statement; $2 millions of warranty claims were paid claims during the year. -$20 million in depreciation expense on the income statement; MACRS depreciation amounted to $35 million on the tax return. There were no other temporary or permanent differences. What was GarbageX’ income tax payable for the current y ...
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