ACCT 557 Week 2 Quiz
1. (TCO B)  As a result of differences between depreciation for financial reporting purposes and tax purposes, the financial reporting basis of Noor Co.’s sole depreciable asset, acquired in Year 1, exceeded its tax basis by $250,000 at December 31, Year 1.  This difference will reverse in future years.  The enacted tax rate is 30% for Year 1, and 40% for future years.  Noor has no other temporary differences.  In its December 31, Year 1, balance sheet, how should Noor report the deferred tax effect of this difference?
2. (TCO B)  Mobe Co. reported the following operating income (loss) for its first three years of operations:Year 1    $       300,000Year 2             (700,000)Year 3             1,200,000For each year, there were no deferred income taxes (before Year 1), and Mobe’s effective income tax rate was 30%.  In its Year 2 income tax return, Mobe elected the two year carry back of the loss.  In its Year 3 income statement, what amount should Mobe 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:
4. (TCO B) Venus Corp.’s worksheet for calculating current and deferred income taxes for Year 1 follows:                                       Year 1             Year 2              Year 3Pretax income              $1,400
Temporary differences:Depreciation                    (800)             (1,200)          $  2,000Warranty costs                  400               (100)              (300)Taxable income            $ 1,000              (1,300)              1,700Loss carryback              (1,000)              1,000Loss carryforward                                      300               (300)                                     $       0            $        0            $  1,400Enacted rate                        30%                 30%                 25%Venus had no prior deferred tax balances.  In its Year 1 income statement, what amount should Venus report as:Current income tax expense?
5. (TCO B) Stone Co. began operations in Year 1 and reported $225,000 in income before income taxes for the year.  Stone’s Year 1 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 Year 1 was 40%, and the enacted rate for years after Year 1 is 35%.  In its December 31, Year 1, balance sheet, what amount of deferred income tax liability should Stone report?


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