Grading Summary

These are the automatically computed results of

your exam. Grades for essay questions, and
comments from your instructor, are in the "Details"
section below.
Date Taken: 3/24/2013
Time Spent: 1 h , 00 secs
Points Received: 40 / 40 (100%)
Question Type: # Of Questions: # Correct:
Multiple Choice 5 5
Grade Details - All Questions
1. Question :
(TCO B) Zeff Co. prepared the following reconciliation of its pretax financial
statement income to taxable income for the year ended December 31, Year 1,
its first year of operations:

Pretax financial income $160,000
Nontaxable interest received on municipal securities (5,000)
Long-term loss accrual in excess of deductible amount 10,000
Depreciation in excess of financial statement amount (25,000)
Taxable income $140,000

Zeff's tax rate for Year 1 is 40%.
In its December 31, Year 1, balance sheet, what should Zeff report as deferred
income tax liability?
Student Answer:
$2,000

$4,000

$6,000

$8,000
Instructor
Explanation:
CPA-00783 Becker Explanation
Choice "c" is correct. The deferred income tax liability equals the 40% tax rate times $15,000
future taxable amount computed as the net of the future taxable amounts [$25,000
depreciation] and the future deductible amounts [$10,000]. SFAS 109

Points Received: 8 of 8
Comments:
2. Question :
(TCO B) Mobe Co. reported the following operating income (loss) for its first
three years of operations:
Year 1 $ 300,000
Year 2 (700,000)
Year 3 1,200,000

For each year, there were no deferred income taxes (before Year 1), and
Mobe's effective income tax rate was 30%. In its Year 2 income tax return,
Mobe elected the two year carry back of the loss. In its Year 3 income
statement, what amount should Mobe report as total income tax expense?
Student Answer:
$120,000

$150,000

$240,000

$360,000
Instructor
Explanation:
CPA-00789 Becker Explanation
Choice "d" is correct, $360,000 total income tax expense for Year 3.

Year 2
DR: Inc. Tax Refund Rec. ($300,000 30%) $90,000
DR: Deferred Tax Asset ($400,000 30%) 120,000
CR: Income Tax Benefit $210,000

Year 3

DR: Income Tax Expense $360,000
CR: Income Tax Payable $240,000
CR: Deferred Tax Asset 120,000
Points Received: 8 of 8
Comments:
3. Question :
(TCO B) Justification for the method of determining periodic deferred tax
expense is based on the concept of:
Student Answer:
Matching of periodic expense to periodic revenue.

Objectivity in the calculation of periodic expense.

Recognition of assets and liabilities.

Consistency of tax expense measurements with actual tax planning
strategies.
Instructor Explanation:
CPA-00828 Becker Explanation
Choice "c" is correct. The justification for the method of determining periodic
deferred tax expense is based on recognition of assets and liabilities.
Points Received: 8 of 8
Comments:
* Times are displayed in (GMT-07:00) Mountain Time (US & Canada)
4. Question :
(TCO B) Venus Corp.'s worksheet for calculating current and deferred income
taxes for Year 1 follows:

Year 1 Year 2 Year 3
Pretax income $1,400
Temporary differences:
Depreciation (800) (1,200) $ 2,000
Warranty costs 400 (100)
(300)
Taxable income $ 1,000 (1,300) 1,700
Loss carryback (1,000) 1,000
Loss carryforward 300 (300)
$ 0 $ 0 $ 1,400
Enacted rate 30% 30% 25%

Venus had no prior deferred tax balances. In its Year 1 income statement, what
amount should Venus report as:
Current income tax expense?
Student Answer:
$420

$350

$300

$0

Instructor Explanation:
CPA-00808 Becker Explanation
Choice "c" is correct, $300 current income tax expense (taxable income of $1,000 x
30%).
Points Received: 8 of 8
Comments:
5. Question :
(TCO B) When accounting for income taxes, a temporary difference occurs in
which of the following scenarios?
Student Answer:
An item is included in the calculation of net income, but is neither taxable nor
deductible.

An item is included in the calculation of net income in one year and in taxable
income in a different year.

An item is no
longer taxable due to a change in the tax law.

The accrual method of accounting is used.
Instructor Explanation:
CPA-06608 Becker Explanation
Choice "b" is correct. A temporary difference arises in situations where items of
revenue and expense enter into pretax GAAP financial income in a period before or
after they enter into taxable income.
Choice "a" is incorrect. This represents a permanent difference.
Choice "c" is incorrect. This represents a permanent difference.
Choice "d" is incorrect. This is not a scenario that creates a temporary difference.
Points Received: 8 of 8
Comments: