Name ____________________________

AC 211 Intermediate Accounting II Chapter 16 Quiz 15 points

Select the best answer for each of the matching questions by placing the appropriate letter in the space provided. Select the best answer for each of the multiple choice questions by circling the appropriate letter. Matching questions are worth 1 point each, multiple choice questions 1-4 are worth 1 point each, and multiple choice questions 5-7 are worth 2 points each. Show all work on problems as partial credit may be given. MATCHING Listed below are five independent situations. For each situation indicate (by letter) whether it will create, (A) a deferred tax asset, (L) a deferred tax liability, or (N) neither. 1. 2. 3. 4. 5. ____ ____ ____ ____ ____ An operating loss carryback. Bad debt expense under the allowance method in the income statement, but only allowable under the direct write-off method for taxes. Interest earned on investments in state and local government bonds. Current year contributions not currently deductible due to tax limitations but which can be carried forward to future tax years. Prepaid expenses, tax deductible when paid.

MULTIPLE CHOICE 1. At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A footnote reveals that the entire $400,000 will be earned in next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a: A) B) C) D) Noncurrent deferred tax liability. Noncurrent deferred tax asset. Current deferred tax liability. Current deferred tax asset.

2.

If a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that: A) B) C) D) Sufficient financial income will be generated in future years to realize the full tax benefit. Sufficient financial and taxable income will exist in future years to realize the full tax benefit. Sufficient taxable income will be generated in future years to realize the full tax benefit. Tax rates will not change in future years.

3.

Under SFAS 109 when there is a net operating loss carryforward: A) B) C) D) A deferred tax liability is recognized. A receivable is created. A deferred tax equity account is created. A deferred tax asset is recorded along with any applicable valuation allowance.

4.

A magazine publisher collects one year in advance for subscription revenue. In the year of providing the magazines, the company would record: A) B) C) D) An increase in a deferred tax asset. A decrease in a deferred tax asset. An increase in a deferred tax liability. A decrease in a deferred tax liability.

5.

For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included bad debt expense of $6 based on the allowance method, and $20 in depreciation expense. Two million in receivables were written off as uncollectible, and MACRS depreciation amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's income tax payable currently, assuming a tax rate of 40%? A) B) C) D) 19.6 million. 25.2 million. 27.6 million. 29.2 million.

6.

Alamo Inc. had $300 million in taxable income for the current year. Trace also had a decrease in deferred tax assets of $30 million and an increase in deferred tax liabilities of $60 million. The company is subject to a tax rate of 40%. The total income tax expense for the year was: A) B) C) D) $390 million. $210 million. $150 million. $30 million.

7.

Theodore Enterprises had the following pretax income (loss) over its first three years of operations: 2004 2005 2006 $500,000 (900,000) 1,500,000

For each year there were no deferred income taxes and the tax rate was 30%. In its 2005 tax return, Theodore elected a loss carryback. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2005. What was Theodore's income tax expense in the year 2006? A) B) C) D) $450,000. $330,000. $270,000. $180,000.