Pretax financial income $160,000
Nontaxable interest received on municipal securities (5,000)
Long-term loss accrual in excess of deductible amount 10,000
Depreciation in excess of financial statement amount (25,000)
Taxable income $140,000
Zeff's tax rate for Year 1 is 40%.
In its December 31, Year 1, balance sheet, what should Zeff report as deferred income tax liability?
2. (TCO B) On its December 31, Year 2, balance sheet, Shin Co. had income taxes payable of $13,000 and a current deferred tax asset of $20,000 before determining the need for a valuation account. Shin had reported a current deferred tax asset of $15,000 at December 31, Year 1. No estimated tax payments were made during Year 2. At December 31, Year 2, Shin determined that it was more likely than not that 10% of the deferred tax asset would not be realized. In its Year 2 income statement, what amount should Shin report as total income tax expense?
3. (TCO B) Hut Co. has temporary taxable differences that will reverse during the next year and add to taxable income. These differences relate to noncurrent assets. Under U.S. GAAP, deferred income taxes based on these temporary differences should be classified in Hut's balance sheet as a:
a) Current asset.
b) Noncurrent asset.
c) Current liability.
d) Noncurrent liability.
4. (TCO B) For the year ended December 31, 1993, Grim Co.'s pretax financial statement income was $200,000 and its taxable income was $150,000. The difference is due to the following:
Interest on municipal bonds $70,000
Premium expense on keyman life insurance (20,000)
Grim's enacted income tax rate is 30%. In its 1993 income statement, what amount should Grim report as current provision for income tax expense?
5. When accounting for income taxes, a temporary difference occurs in which of the following scenarios?
a) An item is included in the calculation of net income, but is neither taxable nor deductible.
b) An item is included in the calculation of net income in one year and in taxable income in a different year.
c) An item is no longer taxable due to a change in the tax law.
d) The accrual method of accounting is used.
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