Question 1: The deferred tax expense is the:
a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.
b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.
c. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability.
d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.
Question 2: The rationale for interperiod income tax allocation is:
a. recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date.
b. recognize a distribution of earnings to the taxing agency.
c. reconcile the tax consequences of permanent and temporary differences appearing on the current year's financial statements.
d. adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet.
Question 3: Interperiod tax allocation results in a deferred tax liability from:
a. an income item partially recognized for financial purposes but fully recognized for tax purposes in any one year.
b. the amount of deferred tax consequences attributed to temporary differences that result in net deductible amounts in future years.
c. an income item fully recognized for tax and financial purposes in any one year.
d. the amount of deferred tax consequences attributed to temporary differences that result in net taxable amounts in future years.
Question 4: Markes Corporation's partial income statement after its first year of operations is as follows:
Income before income taxes $3,750,000
Income tax expense
Current $1,035,000
Deferred 90,000 1,125,000
Net income $2,625,000
Markes uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $1,500,000. No other differences existed between book income and taxable income except for the amount of depreciation. Assuming a 30% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year?
a. $1,200,000
b. $1,425,000
c. $1,500,000
d. $1,800,000
Question 5: Dwyer Company reported the following results for the year ended December 31, 2007, its first year of operations:
2007
Income (per books before income taxes) $750,000
Taxable income 1,200,000
The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2008. What should Dwyer record as a net deferred tax asset or liability for the year ended December 31, 2007, assuming that the enacted tax rates in effect are 40% in 2007 and 35% in 2008?
a. $180,000 deferred tax liability
b. $157,500 deferred tax asset
c. $180,000 deferred tax asset
d. $157,500 deferred tax liability