The following questions are used in the Kaplan CPA Review Course to study accounting for income taxes while preparing for the CPA examination. Determine the response that best completes the statements or questions.
1. Scott Corp. received cash of $20,000 that was included in revenues in its 2011 financial statements, of which $12,000 will not be taxable until 2012. Scott's enacted tax rate is 30% for 2011, and 25% for 2012. What amount should Scott report in its 2011 balance sheet for deferred income tax liability?
a. $2,000
b. $2,400
c. $3,000
d. $3,600

2. West Corp. leased a building and received the $36,000 annual rental payment on June 15, 2011. The beginning of the lease was July 1, 2011. Rental income is taxable when received. West's tax rates are 30% for 2011 and 40% thereafter. West had no other permanent or temporary differences. West determined that no valuation allowance was needed. What amount of deferred tax asset should West report in its December 31, 2011, balance sheet?
a. $ 5,400
b. $ 7,200
c. $10,800
d. $14,400

3. In its December 31, 2011, 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, 2010. No estimated tax payments were made during 2011. At December 31, 2011, Shin determined that it was more likely than not that 10% of the deferred tax asset would not be realized. In its 2011 income statement, what amount should Shin report as total income tax expense?
a. $ 8,000
b. $ 8,500
c. $10,000
d. $13,000

4. Stone Co. began operations in 2011 and reported $225,000 in income before income taxes for the year. Stone's 2011 tax depreciation exceeded its book depreciation by $25,000. Stone also had nondeductible book expenses of $10,000 related to permanent differences. Stone's tax rate for 2011 was 40%, and the enacted rate for years after 2011 is 35%. In its December 31, 2011, balance sheet, what amount of deferred income tax liability should Stone report?
a. $ 8,750
b. $10,000
c. $12,250
d. $14,000

5. Black Co. organized on January 2, 2011, had pretax financial statement income of $500,000 and taxable income of $800,000 for the year ended December 31, 2011. The only temporary differences are accrued product warranty costs, which Black expects to pay as follows:

The enacted income tax rates are 25% for 2011, 30% for 2012 through 2014, and 35% for 2015. Black believes that future years' operations will produce profits. In its December 31, 2011, balance sheet, what amount should Black report as deferred tax asset?
a. $50,000
b. $75,000
c. $90,000
d. $95,000

6. Dix, Inc., a calendar-year corporation, reported the following operating income (loss) before income tax for its first three years of operations:

There are no permanent or temporary differences between operating income (loss) for financial and income tax reporting purposes. When filing its 2010 tax return, Dix did not elect to forego the carryback of its loss for 2010. Assume a 40% tax rate for all years. What amount should Dix report as its income tax liability at December 31, 2011?
a. $ 60,000
b. $ 80,000
c. $120,000
d. $160,000

7. An example of intraperiod income tax allocation is
a. Reporting an extraordinary item in the income statement, net of direct tax effects.
b. Interest income on municipal obligations.
c. Estimated expenses for major repairs accrued for financial statement purposes in one year, but deducted for income tax purposes when paid in a subsequent year.
d. Rental income included in income for income tax purposes when collected, but deferred for financial statement purposes until earned in a subsequent year.

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