Multiple-Choice Questions on Income Taxes at Interim Dates [AICPA Adapted] Select...

Multiple-Choice Questions on Income Taxes at Interim Dates [AICPA Adapted]

Select the correct answer for each of the following questions.

1. According to ASC 270 and 740, income tax expense in an income statement for the first interim period of an enterprise’s fiscal year should be computed by

a. Applying the estimated income tax rate for the full fiscal year to the pretax accounting income for the interim period.

b. Applying the estimated income tax rate for the full fiscal year to the taxable income for the interim period.

c. Applying the statutory income tax rate to the pretax accounting income for the interim period.

d. Applying the statutory income tax rate to the taxable income for the interim period.

2. Neil Company, which has a fiscal year ending January 31, had the following pretax accounting income and estimated effective annual income tax rates for the first three quarters of the year ended January 31, 20X2:

Neil’s income tax expenses in its interim income statement for the third quarter are

a. $18,000.

b. $24,500.

c. $25,500.

d. $76,500.

e. None of the above.

3. Beckett Corporation expects to sustain an operating loss of $100,000 for the full year ending December 31, 20X3. Beckett operates entirely in one jurisdiction where the tax rate is 40 percent. Anticipated tax credits for 20X3 total $10,000. No permanent differences are expected. Realization of the full tax benefit of the expected operating loss and realization of anticipated tax credits are assured beyond any reasonable doubt because they will be carried back. For the first quarter ended March 31, 20X3, Beckett reported an operating loss of $20,000. How much of a tax benefit should Beckett report for the interim period ended March 31, 20X3?

a. $0.

b. $8,000.

c. $10,000.

d. $12,500.

e. None of the above.

4. The computation of a company’s third-quarter provision for income taxes should be based on earnings

a. For the quarter at an expected effective annual income tax rate.

b. For the quarter at the statutory rate.

c. To date at an expected effective annual income tax rate less prior quarters’ provisions.

d. To date at the statutory rate less prior-quarters provisions.

5. During the first quarter of 20X5, Stahl Company had income before taxes of $200,000, and its effective income tax rate was 15 percent. Stahl’s 20X4 effective annual income tax rate was 30 percent, but Stahl expects its 20X5 effective annual income tax rate to be 25 percent. In its first-quarter interim income statement, what amount of income tax expense should Stahl report?

a. $0.

b. $30,000.

c. $50,000.

d. $60,000.

6. Which of the following items will result in the recognition of a deferred tax asset or liability in the second quarter of 20X7 for Nelson Company:

a. The portion of dividends received this quarter on an investment in stock of a U.S. corporation that qualifies for the dividend exclusion.

b. A provision of an expected loss from a lawsuit that is finally settled in 20X8.

c. Expenses related to the acquisition of a municipal bond whose income is not taxable for income tax purposes.

d. Life insurance payments made on policies for executives for which the company is the beneficiary.