Question 46. (LO 1) ELS corporation is about to begin its sixth year of existe

46. (LO 1) ELS corporation is about to begin its sixth year of existence. Assume that ELS reported gross receipts for each of its first five years of existence for scenarios A, B, and C as follows:

a. In what years is ELS allowed to use the cash method of accounting under Scenario A?

b. In what years is ELS allowed to use the cash method of accounting under Scenario B?

c. In what years is ELS allowed to use the cash method of accounting under Scenario C?

47. (LO 2) On its year 1 financial statements, Seatax Corporation, an accrual-method taxpayer, reported federal income tax expense of $570,000. On its year 1 tax return, it reported a tax liability of $650,000. During year 1, Seatax made estimated tax payments of $700,000. What book-tax difference, if any, associated with its federal income tax expense should Seatax have reported when computing its year 1 taxable income? Is the difference favorable or unfavorable? Is it temporary or permanent?

48. (LO 2) Assume Maple Corp. has just completed the third year of its existence (year 3). The table below indicates Maple’s ending book inventory for each year and the additional §263A costs it was required to include in its ending inventory. Maple immediately expensed these costs for book purposes. In year 2, Maple sold all of its year 1 ending inventory, and in year 3 it sold all of its year 2 ending inventory.

a. What book-tax difference associated with its inventory did Maple report in year 1? Was the difference favorable or unfavorable? Was it permanent or temporary?

b. What book-tax difference associated with its inventory did Maple report in year 2? Was the difference favorable or unfavorable? Was it permanent or temporary?

c. What book-tax difference associated with its inventory did Maple report in year 3? Was the difference favorable or unfavorable? Was it permanent or temporary?

49. (LO 2) JDog corporation owns stock in Oscar, Inc. JDog received a $10,000 dividend from Oscar, Inc. What temporary book-tax difference associated with the dividend will JDog report for the year in the following alternative scenarios (for part a., ignore the dividends received deduction)?

a. JDog owns 5 percent of the Oscar, Inc. stock. Oscar’s net income after tax for the year was $500,000.

b. JDog owns 40 percent of the Oscar, Inc. stock. Oscar’s net income after tax for the year was $500,000.

50. (LO 2) On July 1 of year 1, Riverside, Corp. (RC), a calendar-year taxpayer, acquired the assets of another business in a taxable acquisition. When the purchase price was allocated to the assets purchased, RC determined it had a basis of $1,200,000 in goodwill for both book and tax purposes. At the end of year 1, RC determined that the goodwill had not been impaired during the year. In year 2, however, RC concluded that $200,000 of the goodwill had been impaired, and they required RC to write down the goodwill by $200,000 for book purposes.

1. What book-tax difference associated with its goodwill should RC report in year 1? Is it favorable or unfavorable? Is it permanent or temporary?

1. What book-tax difference associated with its goodwill should RC report in year 2? Is it favorable or unfavorable? Is it permanent or temporary?

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