Complete the Week 2 Problems:

Discussion Question 16-1

Discussion Question 16-4

Complete the following Ch. 17 Problems:

Problems 17-41

Problems 17-42

Problems 17-58

Problems 17-59

Problems 17-65

Problems 17-66

Problems 17-70

Problems 17-75

1.

Woodward Corporation reported pretax 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 percent, compute the company’s current income tax expense or benefit. (Amounts to be deducted should be indicated by a minus sign.)

2.

Cass Corporation reported pretax 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 percent, compute the company’s current income tax expense or benefit. (Amounts to be deducted should be indicated by a minus sign.)

3.

Adams Corporation has total deferred tax assets of $3,000,000 at year-end. Management is assessing whether a valuation allowance must be recorded against some or all of the deferred tax assets. What level of assurance must management have, based on the weight of available evidence, that some or all of the deferred tax assets will not be realized before a valuation allowance is required?

Probable.

More likely than not.

Realistic possibility.

Reasonable.

More than remote.

4.

Which of the following evidence would not be considered positive in determining whether Adams Corporation needs to record a valuation allowance for some or all of its deferred tax assets?

The company forecasts future taxable income because of its backlog of orders.

The company has unfavorable temporary differences that will create future taxable income when they reverse.

The company has tax-planning strategies that it can implement to create future taxable income.

The company has cumulative net income over the current and prior two years.

The company had a net operating loss carryover expire in the current year.

5.

Which of the following statements about uncertain tax positions (UTP) is correct?

UTP applies only to tax positions accounted for under ASC 740 taken on a filed tax return.

UTP applies to all tax positions accounted for under ASC 740, regardless of whether the item is taken on a filed tax return.

UTP deals with both the recognition and realization of deferred tax assets.

If a tax position meets the more-likely-than-not standard, the entire amount of the deferred tax asset or current tax benefit related to the tax position can be recognized under ASC 740.

Statements b, c, and d are correct.

6.

Cadillac Square Corporation determined that $1,000,000 of its domestic production activities deduction on its current year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made the following assessment of the company’s potential tax benefit from the deduction and its probability of occurring.

Potential Estimated Benefit    Individual Probability of Occurring (%)         Cumulative Probability of Occurring (%)

$          340,000           40        40

$          272,000           25        65

$          170,000           20        85

0          15        100

What amount of the tax benefit related to the uncertain tax position from the domestic production activities deduction can Cadillac Square Corporation recognize in calculating its income tax provision in the current year?

7

Beacon Corporation recorded the following deferred tax assets and liabilities:

All of the deferred tax accounts relate to temporary differences that arose as a result of the company’s U.S. operations. Which of the following statements describes how Beacon should disclose these accounts on its balance sheet?

Beacon reports a net deferred tax liability of $1,250,000 on its balance sheet.

Beacon nets the deferred tax assets and the deferred tax liabilities and reports a net deferred tax asset of $1,650,000 and a net deferred tax liability of $2,900,000 on its balance sheet.

Beacon can elect to net the current deferred tax accounts and the noncurrent tax accounts and report a net current deferred tax asset of $250,000 and a net deferred tax liability of $1,500,000 on its balance sheet.

Beacon is required to net the current deferred tax accounts and the noncurrent deferred tax accounts and report a net current deferred tax asset of $250,000 and a net deferred tax liability of $1,500,000 on its balance sheet.

8.

Randolph Company reported pretax net income from continuing operations of $800,000 and taxable income of $500,000. The book-tax difference of $300,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $80,000 due to an increase in the reserve for bad debts, and a $180,000 favorable permanent difference from the receipt of life insurance proceeds. Randolph Company’s applicable tax rate is 34 percent.

9.b. Compute Randolph Company’s deferred income tax expense or benefit.

10.

c. Compute Randolph Company’s effective tax rate. (Round your answer to 2 decimal places.)

11

d. Complete the reconciliation of Randolph Company’s effective tax rate with its hypothetical tax rate of 34 percent. (Amounts to be deducted should be indicated by a minus sign. Round your percentages to 2 decimal places.)