073m2a - MIDTERM EXAM 2 November 2, 2007 Exam Book Name: _...

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M IDTERM E XAM 2 November 2, 2007 Exam Book Name: __________________________ 4–Digit Course ID: ________ General Instructions: Answers must be written in the Answer Book to be graded. Any answers not in the Answer Book will not be reviewed or counted. The Answer Book must be turned in along with the Exam Book. If there is ambiguity in a question, answer to the best of your ability and note the assumptions you feel are appropriate next to your answer. Watch your time carefully. Correctly showing your 4-digit number in the space provided above will result in a 3-point bonus added to your score. Page(s) Topic(s) Points Score 5 The Cover Sheet 3 6 Deferred Taxes 40 7 Current Tax Expense 20 7 Accounting for Uncollectibles #1 10 8 Accounting for Uncollectibles #2 36 Accounting for Inventory Errors 45 11 Inventory Methods and Systems 60 12 Capitalization of Interest In Construction Period 20 13 Accounting for Property, Plant & Equipment and Depreciation 33 Accounting for Construction Projects 36 Totals 300 Deferred Taxes: [073M2a] Your 4-Digit #_______ Kate Company was formed in Year 1. Cumulatively through the end of Year 5, when considering only temporary differences, the firm’s financial income had exceeded its taxable
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income by $2,600. In Year 5, the firm’s tax rate had been 25% and this rate had been expected in the future. The firm’s Deferred Tax Liability at the end of Year 5 had been $650. The firm’s Deferred Tax Expense for Year 5 had been a $90 debit. In Year 6, when considering only temporary differences, Kate Company’s financial income was $500 smaller than the firm’s taxable income. The firm’s tax rate in Year 6 dropped to 20% and this new rate was expected in the future. In Year 6, Kate had $200 of municipal bond interest income. ■What is the firm’s Deferred Tax Expense in Year 6? $________ 20 points. If a credit, please indicate by placing your answer in parentheses. Show your final answer in the answer booklet. In Year 7, when considering only temporary differences, Kate’s financial income was $200 larger than the firm’s taxable income. The firm’s tax rate in Year 7 rose to 35% and this rate was expected in the future. In Year 7, Kate had $300 of municipal bond interest income. ■How large was the Katie Company’s Deferred Tax Expense in Year 7? $________20 points. If a credit, please indicate by placing your answer in parentheses. Show your final answer in the answer booklet. Exam continued on next page. Current Tax Expense: [073M2a] Your 4-Digit #_______ Verica Company was formed in Year 1. During the firm’s first year, the firm had financial accounting [FA] income of $3,100. Verica had two permanent differences between FA and tax accounting [TA]: life insurance premiums of $210 on policies for which the firm was the beneficiary and municipal bond interest revenue of $340. Verica had two temporary differences: its TA depreciation expense had been larger than its FA depreciation expense by $450 and the
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073m2a - MIDTERM EXAM 2 November 2, 2007 Exam Book Name: _...

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