ACC 3100 Final Exam. 35 Questions - Baruch College

Baruch College ACC 3100 Final Exam . 1. At the beginning of 2021, Pitman Co. purchased an asset for $1,800,000 with an estimated useful life of 5 years and an estimated salvage value of $150,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-decliningbalance method is being used. Pitman Co.’s tax rate is 20% for 2021 and all future years. At the end of 2021, what are the book basis and the tax basis of the asset? Book basis Tax basis a. $1,320,000 $ 930,000 b. $1,470,000 $ 930,000 c. $1,470,000 $1,080,000 d. $1,320,000 $1,080,000 2. On January 1, 2021, Piper Corp. purchased 25% of the voting common stock of Betz, Inc. and appropriately accounts for its investment by the equity method. During 2021, Betz reported earnings of $1,200,000 and paid dividends of $400,000. Piper assumes that all of Betz's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 20%. Ignore the dividend-received deduction. Piper's current enacted income tax rate is 15%. The increase in Piper's deferred income tax liability for this temporary difference is a. $160,000. b. $120,000. c. $60,000. 3 On January 1, 2021, Piper Corp. purchased 25% of the voting common stock of Betz, Inc. and appropriately accounts for its investment by the equity method. During 2021, Betz reported earnings of $1,200,000 and paid dividends of $400,000. Piper assumes that all of Betz's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 20%. Ignore the dividend-received deduction. Piper's current enacted income tax rate is 15%. The increase in Piper's deferred income tax liability for this temporary difference is a. $160,000. b. $120,000. c. $60,000. d. $40,000. 4.. For calendar year 2021, Kane Corp. reported depreciation of $1,600,000 in its income statement. On its 2021 income tax return, Kane reporteddepreciation of $2,400,000. Kane's income statement also included $300,000 accrued warranty expense that will be deducted for tax purposes when paid. Kane's enacted tax rates are 20% for 2021 and 2022, and 15% for 2023 and 2024. The depreciation difference and warranty expense will reverse over the next three years as follows: Depreciation Difference Warranty Expense 2022 $320,000 $ 60,000 2023 280,000 100,000 2024 200,000 140,000 $800,000 $300,000 These were Kane's only temporary differences. In Kane's 2021 income statement, the deferred portion of its provision for income taxes should be a. $267,600. b. $100,000. c. $88,000. d. $75,000. . 5.Mathis Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 1,200,000 Estimated litigation expense 3,000,000 Installment sales (2,400,000) Taxable income $ 1,800,000 The estimated litigation expense of $3,000,000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1,200,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1,200,000 current and $1,200,000 noncurrent. The income tax rate is 20% for all years. The income tax expense is a. $240,000. b. $360,000. c. $400,000. d. $800,000. 6. A temporary difference arises when a revenue item is reported for tax purposes in a period After it is reported Before it is reported in financial income in financial income a. Yes Yes b. Yes No c. No Yes d. No No7. At the December 31, 2020 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2021, a future taxable amount will occur and a. pretax financial income will exceed taxable income in 2021. b. Unruh will record a decrease in a deferred tax liability in 2021. c. total income tax expense for 2021 will exceed current tax expense for 2021. d. Unruh will record an increase in a deferred tax asset in 2021. 8. Uncertain tax positions I. Are positions for which the tax authorities may disallow a deduction in whole or in part. II. Include instances in which the tax law is clear and in which the company believes an audit is likely. III.Give rise to tax expense by increasing payables or increasing a deferred tax liability. a. I, II, and III. b. I and III only. c. II only. d. I only. 9. Ewing Company sells household furniture. Customers who purchase furniture on the installment basis make payments in equal monthly installments over a two-year period, with no down payment required. Ewing's gross profit on installment sales equals 40% of the selling price of the furniture. For financial accounting purposes, sales revenue is recognized at the time the sale is made. For income tax purposes, however, the installment method is used. There are no other book and income tax accounting differences, and Ewing's income tax rate is 20%. If Ewing's December 31, 2021, balance sheet includes a deferred tax liability of $900,000 arising from the difference between book and tax treatment of the installment sales, it should also include installment accounts receivable of a. $11,250,000. b. $4,500,000. c. $2,250,000. d. $450,000. 10. Rowen, Inc. had pre-tax accounting income of $2,700,000 and a tax rate of 20% in 2021, its first year of operations. During 2021 the company had the following transactions: Received rent from Jane, Co. for 2022 $ 96,000Municipal bond income $120,000 Depreciation for tax purposes in excess of book depreciation $60,000 Installment sales profit to be taxed in 2022 $162,000 For 2021, what is the amount of income taxes payable for Rowen, Inc? a. $452,400 b. $490,800 c. $514,800 d. $579,600