Question 31. (LO 4) Where on the balance sheet does a company report its unrecognized tax benefits? 32. (LO 4) Why did many companies oppose FIN 48 when it was first proposed?

31. (LO 4) Where on the balance sheet does a company report its unrecognized tax benefits?

32. (LO 4) Why did many companies oppose FIN 48 when it was first proposed?

33. (LO 5) How does a company determine if a deferred tax asset or liability should be classified as current or noncurrent on its balance sheet?

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34. (LO 5) Under what conditions can a company net its current deferred tax assets with its current deferred tax liabilities on the balance sheet?

35. (LO 5) True or False: A publicly traded company must disclose all of the components of its deferred tax assets and liabilities in a footnote to the financial statements. Explain.

36. (LO 5) What is a company’s hypothetical income tax provision and what is its importance in a company’s disclosure of its income tax provision in the tax footnote?

37. (LO 5) Briefly describe the difference between a company’s effective tax rate, cash tax rate, and structural tax rate.

Problems

38. (LO 1) Which of the following taxes is not accounted for under ASC 740?

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39. (LO 1) Which of the following organizations can issue rules that govern accounting for income taxes?

a. FASB

b. SEC

c. IRS

d. a and b above

e. All of the above organizations

40. ([LO 1) Find the paragraph(s) in ASC 740 that deal with the following items (you can access ASC 740 on the FASB website at http://www.fasb.org, and clicking on “View the Codification.” You will need a password from your instructor.

a. The objectives and basic principles that underlie ASC 740

b. Examples of book-tax differences that create temporary differences

c. The definition of a “tax planning strategy”

d. Examples of positive evidence in the valuation allowance process

e. Rules relating to financial statement disclosure

41. (LO 2) Woodward Corporation reported pre-tax book income of $1,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $50,000, and favorable permanent differences of $100,000. Assuming a tax rate of 34%, compute the company’s current income tax expense or benefit.

42. (LO 2) Cass Corporation reported pre-tax book income of $10,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by $200,000. Cass Corporation sold a fixed asset and reported book gain of $50,000 and tax gain of $75,000. Finally, the company received $250,000 of tax-exempt life insurance proceeds from the death of one of its officers. Assuming a tax rate of 34%, compute the company’s current income tax expense or benefit.

43. (LO 2) Grand Corporation reported pre-tax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest. The company’s prior year tax return showed taxable income of $50,000. Assuming a tax rate of 34%, compute the company’s current income tax expense or benefit.

44. (LO 2) Chandler Corporation reported pre-tax book income of $2,000,000. Tax depreciation exceeded book depreciation by $500,000. During the year the Company capitalized $250,000 into ending inventory under §263A. Capitalized inventory costs of $150,000 in beginning inventory were deducted as part of cost of goods sold on the tax return. Assuming a tax rate of 34%, compute the company’s taxes payable or refundable.

45. (LO 2) Davison Company determined that the book basis of its office building exceeded the tax basis by $800,000. This basis difference is properly characterized as:

a. Permanent difference

b. Taxable temporary difference

c. Deductible temporary difference

d. Favorable book-tax difference

e. Both b and d above are correct

46. (LO 2) Abbot Company determined that the book basis of its allowance for bad

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