MULTIPLE CHOICE
1. Nu Company reported the following pretax data for its first year of operations.
Net sales 2,800 Cost of goods available for sale 2,500 Operating expenses 880 Effective tax rate 40% Ending inventories: If LIFO is elected 820 If FIFO is elected 1,060
What is Nu's gross profit percentage if it elects LIFO? (Points : 1)
2. The use of LIFO during a long inflationary period can result in: (Points : 1)
3. The primary reason for the popularity of LIFO is that it gives: (Points : 1)
4. In determining the cost-to-retail percentage for the current year,: (Points : 1)
5. Inventory does not include: (Points : 1)
6. So. California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2006. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2006, $300,000; sales and purchases from January 1, 2006, to May 1, 2006, $1,300,000 and $875,000, respectively. So. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2006, is: (Points : 1)
7. In a period when prices are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of: (Points : 1)
8. To determine the value of a LIFO layer, using dollar-value LIFO retail: (Points : 1)
9. When using the gross profit method to estimate ending inventory, it is not necessary to know: (Points : 1)
10. The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be: (Points : 1)
Click here for the solution: 1. Nu Company reported the following pretax data for its first year of operations
Showing posts with label pretax. Show all posts
Showing posts with label pretax. Show all posts
Wednesday, April 13, 2016
Thursday, January 14, 2016
Sherrod, Inc., reported pretax accounting income of $76 million for 2011
P16-7 Multiple differences; calculate taxable income; balance sheet classification
Sherrod, Inc., reported pretax accounting income of $76 million for 2011. The following information relates to differences between pretax accounting income and taxable income:
Income from installment sales of properties included in pretax accounting income in 2011 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2010 and 2011 installment sales), expected to be collected equally in 2012 and 2013.
Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2011. The fine is to be paid in equal amounts in 2011 and 2012. Sherrod rents its operating facilities but owns one asset acquired in 2010 at a cost of $80 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):
Income Statement Tax Return Difference
2010 $20 $26 ($6)
2011 20 35 (15)
2012 20 12 8
2013 20 7 13
$80 $80 $0
4. Bad debt expense of $3 million is reported using the allowance method in 2011. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method): $2 million in 2011. At December 31, 2011, the allowance for uncollectible accounts was $2 million (after adjusting entries). The balance was $1 million at the end of 2010.
5. In 2011, Sherrod accrued and expense and related liability for estimated paid future absences of $7 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million 2012; $3 million in 2013).
6. During 2010, accounting income included as estimated loss of $2 million from having accrued a loss contingency. The lost is paid in 2011 at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2011, were $1.2 million and $2.8 million, respectively. The enacted tax rate is 40% each year.
Required:
1. Determine the amounts necessary to record income taxes for 2011 and prepare the appropriate journal entry.
2. What is the 2011 net income?
3. Show how deferred tax amounts should be classified and reported in the 2011 balance sheet.
Click here for the solution: Sherrod, Inc., reported pretax accounting income of $76 million for 2011
Sherrod, Inc., reported pretax accounting income of $76 million for 2011. The following information relates to differences between pretax accounting income and taxable income:
Income from installment sales of properties included in pretax accounting income in 2011 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2010 and 2011 installment sales), expected to be collected equally in 2012 and 2013.
Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2011. The fine is to be paid in equal amounts in 2011 and 2012. Sherrod rents its operating facilities but owns one asset acquired in 2010 at a cost of $80 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):
Income Statement Tax Return Difference
2010 $20 $26 ($6)
2011 20 35 (15)
2012 20 12 8
2013 20 7 13
$80 $80 $0
4. Bad debt expense of $3 million is reported using the allowance method in 2011. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method): $2 million in 2011. At December 31, 2011, the allowance for uncollectible accounts was $2 million (after adjusting entries). The balance was $1 million at the end of 2010.
5. In 2011, Sherrod accrued and expense and related liability for estimated paid future absences of $7 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million 2012; $3 million in 2013).
6. During 2010, accounting income included as estimated loss of $2 million from having accrued a loss contingency. The lost is paid in 2011 at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2011, were $1.2 million and $2.8 million, respectively. The enacted tax rate is 40% each year.
Required:
1. Determine the amounts necessary to record income taxes for 2011 and prepare the appropriate journal entry.
2. What is the 2011 net income?
3. Show how deferred tax amounts should be classified and reported in the 2011 balance sheet.
Click here for the solution: Sherrod, Inc., reported pretax accounting income of $76 million for 2011
Sunday, July 19, 2015
South Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows
South Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
Pretax financial income $ 420,000
Extra depreciation taken for tax purposes (1,050,000)
Estimated expenses deductible for taxes when paid 840,000
Taxable income $ 210,000
Use of the depreciable assets will result in taxable amounts of $350,000 in each of the next three years. The estimated litigation expenses of $840,000 will be deductible in 2013 when settlement is expected.
Instructions
(a) Prepare a schedule of future taxable and deductible amounts.
(b) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2010, assuming a tax rate of 40% for all years.
Click here for the solution: South Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows
Pretax financial income $ 420,000
Extra depreciation taken for tax purposes (1,050,000)
Estimated expenses deductible for taxes when paid 840,000
Taxable income $ 210,000
Use of the depreciable assets will result in taxable amounts of $350,000 in each of the next three years. The estimated litigation expenses of $840,000 will be deductible in 2013 when settlement is expected.
Instructions
(a) Prepare a schedule of future taxable and deductible amounts.
(b) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2010, assuming a tax rate of 40% for all years.
Click here for the solution: South Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows
Wednesday, June 17, 2015
The Hunter Company purchased a light truck on January 2, 2010 for $18,000
Problem 11-11 (P11-11) Depreciation for Financial Statements and Income Tax Purposes
The Hunter Company purchased a light truck on January 2, 2010 for $18,000. The truck, which will be used for deliveries, has the following characteristics: Estimated life: 5 years Estimated residual value: $3,000 Depreciation for financial statements: straight-line Depreciation for income tax purposes: MARCS (three- year-life) From 2010 through 2014, each year, the company had sales of $100,000, cost of goods sold of $60,000, and operating expenses (excluding depreciation) of $15,000. The truck was disposed of on December 31, 2014 for $2,000.
1. Prepare an income statement for financial reporting through pretax accounting income for each of the five years, 2010 through 2014.
2. Prepare, an income statement for income tax purposes through taxable income for each of the five years, 2010 through 2014.
3. Compare the total income for all five years under requirement 1 and Requirement 2.
Click here for the solution: The Hunter Company purchased a light truck on January 2, 2010 for $18,000
The Hunter Company purchased a light truck on January 2, 2010 for $18,000. The truck, which will be used for deliveries, has the following characteristics: Estimated life: 5 years Estimated residual value: $3,000 Depreciation for financial statements: straight-line Depreciation for income tax purposes: MARCS (three- year-life) From 2010 through 2014, each year, the company had sales of $100,000, cost of goods sold of $60,000, and operating expenses (excluding depreciation) of $15,000. The truck was disposed of on December 31, 2014 for $2,000.
1. Prepare an income statement for financial reporting through pretax accounting income for each of the five years, 2010 through 2014.
2. Prepare, an income statement for income tax purposes through taxable income for each of the five years, 2010 through 2014.
3. Compare the total income for all five years under requirement 1 and Requirement 2.
Click here for the solution: The Hunter Company purchased a light truck on January 2, 2010 for $18,000
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