Gia02 tb chapter 17 - Intermediate Accounting 2E - Gordon - TB PDF

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Intermediate Accounting, 2e (Gordon/Raedy/Sannella)Chapter 17 Accounting for Income Taxes17 No Differences between Book and Tax Reporting1) Book income refers to the amount of income reported on a company's tax return. Answer: FALSE Diff: 1 Var: 1 Objective: 17. IFRS/GAAP: GAAP AACSB: Application of...

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Intermediate Accounting, 2e (Gordon/Raedy/Sannella) Chapter 17 Accounting for Income Taxes 17.1 No Differences between Book and Tax Reporting 1 )Booki nc omer e f er st ot hea mountofi nc omer e por t e donac ompa ny' st a xr e t ur n. Ans we r :F ALSE Di ff:1 Va r : 1 Obj e c t i ve :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dge

2 )Ta xa bl ei nc omer e f e r st ot heamountofi nc omer e por t e donac ompa ny' st axr e t ur n. Ans we r :TRUE Di ff:1 Va r : 1 Obj e c t i ve :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dge

3 )Thea mountofi nc omeac ompanyr e por t si ni t sfina nc i als t a t e me nt si sknownas__ __ ___ _. A)boo ki nc ome B)ne tope r a bl ei nc ome C)t axa bl ei nc ome D)r e ve nuei nc ome Ans we r :A Di ff:1 Va r : 1 Obj e c t i ve :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dge

4 )Thea mountofi nc omet ha tac ompa nyr e por t soni t st axr e t ur ni sknowna s_ __ ___ __ . A)r e f undabl ei nc ome B)t ax abl ei nc ome C)de duc t i bl ei nc ome D)ne ti nc ome Ans we r :B Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

1 Co pyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

5 )Gr e e neCo.ha sbooki nc omeof$ 425 , 0 00 ,andat a xr a t eof3 0%.As s umi ngt he r ear enobook t ax di ffe r e nc es ,wha twi l lt hej our nale nt r ybet or e c or dt hei nc omet a xe xpe ns e ? A) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

1 27, 50 0

B) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

2 55, 00 0

C) I nc omeTaxPa yabl e I nc omeTa xExpe ns e

127 , 5 00

D) I nc omeTaxPa yabl e I nc omeTa xExpe ns e

255 , 0 00

12 7, 500

25 5, 000

127 , 5 00

255 , 0 00

Ans we r :A Expl ana t i on:$4 25 , 0 00×30% =$1 27, 5 00 Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

6 )TLRPr oduc t i onsha sbooki nc omeof$ 45 0, 000 ,a ndat axr a t eof3 5 %.As s umi ngt he r ear enobook t a x di ffe r e nc es ,wha ti sTLR' si nc omet axe xpe ns e ? A)$1 44, 00 0 B)$1 57, 5 00 C)$1 89, 00 0 D)$ 29 2, 500 Ans we r :B Expl ana t i on:$4 50 , 0 00×35% Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

2 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

7 )TNTCor por a t i on' si nc omet axpa ya bl ei s$2 30, 0 00andi t st a xr a t ei s30%.As s umi ngnobookt ax di ffe r e nc es ,wha ti sTNT' si nc omebe f or et a x e s ?( Roundyoura ns we rt ot hene a r e s twhol edol l a r . ) A)$6 9, 000 B)$2 30, 0 00 C)$7 66, 66 7 D)$ 32 8, 571 Ans we r :C Expl ana t i on:$2 30 , 0 00/3 0% Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

8 )TNTCor por a t i on' si nc omet axpa ya bl ei s$2 40, 0 00andi t st a xr a t ei s30%.As s umi ngnobookt ax di ffe r e nc es ,wha ti sTNT' sne ti nc ome ?( Roundyoura ns we rt ot hene a r e s twhol edol l a r . ) A)$7 2, 000 B)$2 40, 0 00 C)$8 00, 00 0 D)$ 56 0, 000 Ans we r :D Expl ana t i on:I nc omebe f or et ax es( $24 0, 00 0/30 % =$ 800 , 0 00 )l e s si nc omet a x e se xpe ns e( $ 240 , 0 00 )=ne t i nc ome( $ 560 , 0 00 ) . Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

9 )S&CI nc . ' si nc omet a xpa ya bl ei s$2 90, 00 0andi t st a xr a t ei s3 0%. As s umi ngnobookt a xdi ffe r e nc e s , wha ti sS&C' sne ti nc ome ?( Roundyourans we rt ot hene ar e s twhol edol l ar . ) A)$6 76, 66 7 B)$8 7, 00 0 C)$3 77, 00 0 D)$ 96 6, 667 Ans we r :A Expl ana t i on:I nc omebe f or et ax es( $29 0, 00 0/30 % =$ 966 , 6 67 )l e s si nc omet a x e se xpe ns e( $ 290 , 0 00 )=ne t i nc ome( $ 676 , 6 67 ) . Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

3 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

1 0)Be t t aGr oup' sne ti nc omei s$40 0, 00 0andi t st axr a t ei s25%. As s umi ngnobookt axdi ffe r e nc e s ,wha ti s Be t t a' st a x e spa ya bl e ?( Roundy ourans we rt ot hene ar e s twhol edol l ar . ) A)$1 00, 00 0 B)$1 33, 3 33 C)$1 , 6 00, 00 0 D)$ 53 3, 333 Ans we r :B Expl ana t i on:I nc omebe f or et ax es=$ 400 , 000/( 1-25%)=$ 533 , 333 ;Tax espa ya bl e=I nc omebe f or et ax es $ 53 3, 333-Ne ti nc ome$4 00, 00 0=TaxExpe ns e( Pa ya bl e)=$ 133 , 333 Di ff:2 Va r : 1 Obj e c t i v e :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

1 1)Br ownI nc . ' sne ti nc omei s$ 30 0, 000andi t st axr a t ei s25 %.As s umi ngnobook t a xdi ffe r e nc e s , wha ti s t hej our nale nt r yt or e c or di nc omet a xe xpe ns e ?( Donotr oundi nt e r me di a t ec al c ul a t i ons . Onl yr oundyour finalans we rt ot hene ar e s twhol edol l a r . ) A) I nc omeTaxExpe ns e 75, 00 0 I nc omeTa xPa ya bl e 7 5, 000 B) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

4 00, 00 0

C) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

3 00, 00 0

D) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

1 00, 00 0

40 0, 000

30 0, 000

10 0, 000

Ans we r :D Expl ana t i on:I nc omebe f or et ax es=ne ti nc ome /( 1-t a xr a t e )=$ 300 , 0 00 /0. 75=$40 0, 00 0 I nc omet axe xpe ns e=i nc omebe f or et a x e s-ne ti nc ome=$ 40 0, 000-$ 300 , 0 00=$1 00, 00 0 Di ff:2 Va r : 1 Obj e c t i v e :1 7 . 1 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

17.2 Permanent Differences between Book and Tax Reporting 1 )Thee ffe c t i vet axr a t ei st hel e ga l l yi mpos e dr a t ei nagi ve nt a xi ngj ur i s di c t i on. Ans we r :F ALSE Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

2 )Thes t a t ut or yt a xr a t ei st hel e ga l l yi mpos e dr a t ei nagi v ent ax i ngj ur i s di c t i on. Ans we r :TRUE Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e 4 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

3 )U. S .GAAPr e qui r e sc ompani e st or e c onc i l et hef e de r a ls t a t ut or yi nc omet a xr a t et ot hee ffe c t i vet axr a t e . Ans we r :TRUE Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

4 )_ __ ___ __di ffer e nc e sbe t we e nbooki nc omeandt a xa bl ei nc omer e s ul ti nane ffe c t i vet a xr a t et ha tdi ffer s f r om t hes t a t ut or yt axr a t e . A)Te mpor a r y B)Pe r ma nent C)Shor t t e r m D)Longt e r m Ans we r :B Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

5 )Whi c hoft hef ol l o wi ngs t a t eme nt sb e s tde s c r i be st hee ffe c t i vet a xr a t e ? A)I ti st hel e gal l yi mpos e dr a t ei nagi v e nt a xi ngj ur i s di c t i on. B)I tc a nbec al c ul a t e dbydi vi di ngi nc omet a xe xpe ns ebybooki nc omebe f or et a x e s . C)I tc hange sa nnual l yba s e donpr ovi s i onsf r om Congr e s s . D)I ti sc al c ul a t e da sbooki nc omedi vi de dbyt ax abl ei nc ome . Ans we r :B Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

6 )Ca es arCor por a t i onr e por t smuni c i pa li nt e r e s ti nc omeont hei rfinanc i a ls t a t e me nt s .Wha t( i fany)book t a xdi ffe r e nc ewi l lr e s ul t ? A)Te mpor a r ydi ffe r e nc e ;booki nc omegr e a t ert hant a xabl ei nc ome . B)Te mpor ar ydi ffe r enc e ;t ax abl ei nc omegr e a t e rt ha nbooki nc ome . C)Pe r manentdi ffe r e nc e ;booki nc omegr e a t e rt ha nt ax abl ei nc ome . D)Nodi ffe r e nc e ;muni c i pa li nt e r es ti st ax abl ei nc ome . Ans we r :C Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

7 )Da nt eI nc . r e por t e dfine sa ndpenal t i e sont he i ri nc omes t a t e me ntt hi sye a r .Wha t( i fa ny)book t a x di ffe r e nc ewi l lr e s ul t ? A)Te mpor a r ydi ffe r e nc e ;booki nc omel e s st ha nt ax abl ei nc ome . B)Pe r ma nentdi ffe r e nc e ;booki nc omegr e a t e rt ha nt axa bl ei nc ome . C)Pe r manentdi ffe r e nc e ;booki nc omel e s st hant a xa bl ei nc ome . D)Nodi ffe r e nc e ;finesandpe nal t i e sar et axde duc t i bl e . Ans we r :C Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

8 )Ol ympi c sI nc .r e c or de dadi vi de ndsr e c e i veddeduc t i onont he i rt axr e t ur nt hi sye a r .Wha t( i fany)book t a xdi ffe r e nc ewi l lr e s ul t ? 5 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

A)Te mpor a r ydi ffe r e nc e ;booki nc omel e s st ha nt ax abl ei nc ome . B)Pe r ma nentdi ffe r e nc e ;booki nc omel e s st hant a xa bl ei nc ome . C)Pe r manentdi ffe r e nc e ;booki nc omegr e a t e rt ha nt ax abl ei nc ome . D)T e mpor a r ydi ffe r e nc e ; booki nc omegr e a t e rt hant a xa bl ei nc ome . Ans we r :C Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

9 )Me di aCor por a t i oni nc ur r e d$25 , 0 00i ne xpe ns e sas s oc i a t e dwi t ht ax e xe mpti nc omet hi sye a r .Wha t( i f a ny)book t axdi ffe r enc ewi l lr e s ul t ? A)Te mpor a r ydi ffe r e nc e ;booki nc omel e s st ha nt ax abl ei nc ome . B)Pe r ma nentdi ffe r e nc e ;booki nc omel e s st hant a xa bl ei nc ome . C)Pe r manentdi ffe r e nc e ;booki nc omegr e a t e rt ha nt ax abl ei nc ome . D)T e mpor a r ydi ffe r e nc e ; booki nc omegr e a t e rt hant a xa bl ei nc ome . Ans we r :B Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

6 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

1 0)Char me dI nc . ' si nc omebe f or et axe si s$7 20, 00 0andi t st a xr a t ei s25%.Cha r me di nc l uded$30 , 000i n nondeduc t i bl el i f ei ns ur a nc epr e mi umsi nt he$ 720 , 0 00 .Ther ear enoot he rbook t axdi ffe r e nc e s .Wha ti s t hej our nale nt r yt or ec or di nc omet a xe xpe ns e ? A) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

7, 50 0

B) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

1 72, 50 0

C) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

1 80, 00 0

D) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

1 87, 50 0

7, 500

17 2, 500

18 0, 000

18 7, 500

Ans we r :D Expl ana t i on:( $7 20 , 0 00+$30 , 0 00 )×0. 25 Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

1 1)LyonGr oup' si nc omebe f or et ax e si s$ 420 , 0 00a ndi t st axr a t ei s40 %.Ly oni nc l ude d$30 , 0 00i nfine s a ndpenal t i e si nt he$ 420 , 0 00 .The r ea r enoot herbookt axdi ffe r e nc e s . Wha ti si nc omet axpa ya bl ef or Ly onGr oup? A)$1 68, 00 0 B)$1 80, 0 00 C)$1 56, 00 0 D)$12 , 0 00 Ans we r :B Expl ana t i on:( $4 20 , 0 00+$30 , 0 00 )×0. 4 Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

7 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

1 2)TomKa tI nc . ' si nc omebe f or et a x e si s$36 0, 00 0andi t st a xr a t ei s3 0%. TomKa ti nc l uded$6 0, 000of i nt e r e s tf r om muni c i pa lbondsi nt he$ 36 0, 000 .The r ear enoot he rbook t axdi ffer e nc es .Wha ti st hej our na l e nt r yt or e c or di nc omet a xe xpens e ? A) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

90, 00 0

B) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

1 08, 00 0

C) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

1 26, 00 0

D) I nc omeTaxExpe ns e I nc omeTa xPa ya bl e

18, 00 0

9 0, 000

10 8, 000

12 6, 000

1 8, 000

Ans we r :A Expl ana t i on:( $3 60 , 0 00-$6 0, 000 )×0. 3 Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

1 3)Pur r f e c tPe tI ndus t r i e s ' i nc omebe f or et a x esi s$81 0, 00 0andi t st a xr a t ei s50%.Pur r f e c tPe ti nc l ude d $ 50 , 0 00off ul l yde duc t i bl ei nt e r c or por a t edi vi de ndsr e c e i ve di nt he$8 10, 00 0. The r ea r enoot he rbook t a x di ffe r e nc es . Wha ti st hei nc omet axpa ya bl ef orPur r f e c tPe t ? A)$4 05, 00 0 B)$4 30, 0 00 C)$2 5, 000 D)$38 0, 000 Ans we r :D Expl ana t i on:( $8 10 , 0 00-$5 0, 000 )×50 % Di ff:1 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

8 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

1 4)Da ni oI nc . ' si nc omebe f or et a x e si s$ 55 0, 000a ndi t st axr a t ei s30 %.Da ni oi nc l ude d$3 0, 00 0ofi nt e r es t f r om muni c i palbondsi nt he$ 550 , 0 00 .The r ear enoot he rbook t a xdi ffe r e nc e s . Wha ti st hee ffe c t i vet a x r a t ef orDa ni oI nc . ?( Donotr oundi nt e r me di a t ec al c ul a t i ons .Onl yr oundyourfina lans we rt ot hene ar e s t pe r c e nt . ) A)27 % B)28 % C)30 % D)32% Ans we r :B Expl ana t i on:[ ( $5 50 , 0 00-$30 , 000 )×30%]/$5 50, 000 Di ff:2 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

1 5)Bl ueCompany' si nc omebe f or et a x e si s$ 410 , 0 00a ndi t st axr a t ei s4 0%. Bl uei nc l ude d$50 , 0 00offines a ndpenal t i e si nt he$ 410 , 0 00 .The r ea r enoot herbookt axdi ffe r e nc e s . Wha ti st hee ffe c t i vet axr a t ef or Bl ueCompa ny?( Donotr oundi nt e r me di a t ec a l c ul a t i ons .Onl yr oundyourfinalans we rt ot hene ar e s t pe r c e nt . ) A)35 % B)40 % C)45 % D)51% Ans we r :C Expl ana t i on:[ ( $4 10 , 0 00+$50 , 0 00 )×40 %]/$4 10, 00 0 Di ff:2 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

1 6)Kr a vi t zCor por a t i onhadi nc omebe f or et a xe sof$ 900 , 0 00a ndat axr a t eof25%.I nc l udedi nt hei nc ome a r e$ 70 , 0 00i nmuni c i palbondi nt e r es ta nd$1 0, 00 0i nfine sandpe nal t i e s . The r ea r enoot herbookt ax di ffe r e nc es . Re f e rt oKr a vi t zCor por a t i on. Wha ti st hene tamountofKr a vi t z ' sbook t a xdi ffe r e nc e ? A)Booki nc omet ha ti s$60 , 0 00gr e a t ert hant a xabl ei nc ome B)Booki nc omet ha ti s$7 0, 00 0gr e a t e rt ha nt ax abl ei nc ome C)Ta xa bl ei nc omet ha ti s$ 10, 0 00gr e a t e rt hanbooki nc ome D)Ta xa bl ei nc omet ha ti s$6 0, 00 0gr e a t e rt hanbooki nc ome Ans we r :A Expl ana t i on:Muni c i palbondi nt e r e s tc r e a t e sper mane ntdi ffe r enc e —booki nc ome$ 70, 0 00gr e a t e r — r e duc e dbype r ma ne ntdi ffe r e nc ef r om finesa ndpenal t i e s —booki nc ome$ 10 , 0 00l e s s—f orane t di ffe r e nc eof$60 , 000 , Di ff:2 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Ana l yt i c a lt hi nki ng

9 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

1 7)Kr a vi t zCor por a t i onhadi nc omebe f or et a xe sof$ 900 , 0 00a ndat axr a t eof45%.I nc l udedi nt hei nc ome a r e$ 80 , 0 00i nmuni c i palbondi nt e r es ta nd$1 0, 00 0i nfine sandpe nal t i e s . The r ea r enoot herbookt ax di ffe r e nc es . Re f e rt oKr a vi t zCor por a t i on. Wha ti sKr a vi t z' st ax a bl ei nc ome ? A)$9 10, 00 0 B)$8 20, 0 00 C)$8 30, 00 0 D)$90 0, 000 Ans we r :C Expl ana t i on:Booki nc ome$ 900 , 0 00-$ 80, 00 0muni c i pa lbondi nt e r e s t+$ 10, 00 0finesandpe nal t i e s= $ 83 0, 000t a xa bl ei nc ome . Di ff:2 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Ana l yt i c a lt hi nki ng

1 8)Kr a vi t zCor por a t i onhadi nc omebe f or et a xe sof$ 890 , 0 00a ndat axr a t eof45%.I nc l udedi nt hei nc ome a r e$ 40 , 0 00i nmuni c i palbondi nt e r es ta nd$2 0, 00 0i nfine sandpe nal t i e s . The r ea r enoot herbookt ax di ffe r e nc es . Re f e rt oKr a vi t zCor por a t i on. Wha ti sKr a vi t z' se ffe c t i vei nc omet axr a t e ?( Donotr oundi nt e r me di a t e c al c ul a t i ons .Onl yr oundyourfinala ns we rt ot hene ar e s tt e nt hpe r c ent . ) A)44 % B)46 % C)45 % D)48% Ans we r :A Expl ana t i on:Booki nc ome$ 890 , 0 00-$ 40, 00 0muni c i pa lbondi nt e r e s t+$ 20, 00 0finesandpe nal t i e s= $ 87 0, 000t a xa bl ei nc ome . Ta x=45% ×$8 70 , 0 00=$39 1, 50 0.Effe c t i ver a t e=$ 391 , 5 00/$ 890 , 000booki nc ome =44 %. Di ff:2 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Ana l yt i c a lt hi nki ng

1 0 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

1 9)Pi pe rI nc . ' si nc omebe f or et ax esi s$5 50 , 0 00andi t st a xr a t ei s40 %.Pi pe ri nc l ude d$3 0, 000ofi nt e r e s t f r om muni c i palbondsi nt he$ 550 , 0 00 .The r ear enoot he rbook t a xdi ffe r e nc e s . Pr e par et hej our nale nt r y t or e c or di nc omet axe xpens eandar e c onc i l i a t i onoft hes t a t ut or yt a xr a t et ot hee ffe c t i vet axr a t e . ( Donot r oundi nt e r me di a t ec al c ul a t i ons .Onl yr oundy ourfina lans we rt ot hene ar e s tt e nt hpe r c ent . ) Ans we r : J our na lEnt r y: I nc omeTaxExpe ns e 2 08, 00 0 I nc omeTa xPa ya bl e 2 08, 00 0 ( $ 55 0, 00 0-$3 0, 00 0)×40 % Re c onc i l i a t i on: De s c r i pt i on I nc omet axa ts t a t ut or yr a t e Ta xs a vi ngsf r om muni c i pali nt e r e s t Ta xa tt hee ffe c t i v er a t e

Dol l a r s Pe r c e nt a ge $ 220 , 0 00 * 4 0. 0% $( 1 2, 000 * * ) ( 2 . 2%* * * ) $2 08 , 0 00 37 . 8%* * * *

*$ 55 0, 000×40 % * *$30 , 000×40% * * *$12 , 0 00/$5 50, 00 0 * * * *$2 08, 0 00/$55 0, 00 0 Di ff:2 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

1 1 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

2 0)Ga l l a gherCor por a t i on' sbooki nc omebe f or et a x esi s$60 0, 00 0andi t st axr a t ei s35%.I nc l udedi nt he i nc omebe f or et ax e si s$ 50, 0 00i nfine sa ndpenal t i e s .The r ear enoot he rbook t axdi ffe r e nc e s .Pr e pa r et he j our na lent r yt or e c or di nc omet a xe xpe ns eandar ec onc i l i a t i onoft hes t a t ut or yt axr a t et ot hee ffe c t i v et a x r a t e . ( Donotr oundi nt e r medi a t ec a l c ul a t i ons .Onl yr oundyourfinalans we rt ot hene a r e s tt e nt hpe r c e nt . ) Ans we r : J our na lEnt r y: I nc omeTaxExpe ns e 2 27, 50 0 I nc omeTa xPa ya bl e 2 27, 50 0 ( $ 60 0, 00 0+$5 0, 00 0)×3 5% Re c onc i l i a t i on: De s c r i pt i on Dol l a r s Pe r c e nt a ge I nc omet axa ts t a t ut or yr a t e $ 210 , 000 * 35 . 0 % Ta xe xpe ns ef r om fine sandpe nal t i es $17 , 5 00 * * 2. 9 %* * * Ta xa tt hee ffe c t i v er a t e $ 22 7, 500 3 7. 9%* * * * *$ 60 0, 000×35 % * *$50 , 000×35% * * *$17 , 5 00/$6 00, 00 0 * * * *$2 27, 5 00/$60 0, 00 0 Di ff:2 Va r : 1 Obj e c t i v e :1 7 . 2 I FRS /GAAP:GAAP AACSB:Appl i c a t i onofknowl e dg e

1 2 Copyr i ght©2 0 1 9Pe a r s onEduc a t i on,I nc .

2 1)Be t zCor por a t i on' si nc omebe f or et ax esi s$7 25 , 0 00a ndi t st a xr a t ei s40%.I nc l udedi nt hi samounti s $ 50 , 0 00i nmuni c i pa lbondi nt e r e s tand$15 , 000i noffic e r s ' l i f ei ns ur a nc e .The r ear enoot he rbook t ax di ffe r e nc es . Pr e pa r et hej our nale nt r yt or e c or di nc omet axe xpe ns eandar e c onc i l i a t i onoft hes t a t ut or y t a xr a t et ot hee ffec t i vet axr a t e .( Donotr oundi nt e r me di a t ec al c ul a t i ons .Onl yr oundyourfinala ns we rt o t hene a r e s tt ent hpe r c e nt . ) Ans we r :J our nalEnt r y: I nc omeTaxExpe ns e 2 76, 00 0 I nc omeTa xPa ya bl e 27 6, 000 ( $ 72 5, 00 0+$1 5, 00 0-$ 50, 0 00)×4 0% Re c onc i l i a t i on: De s c r i pt i on I nc omet axa ts t a t ut or yr a t e Ta xs a vi ngsf r om muni c i pali nt e r e s t Ta xi nc r e as ef r om l i f ei ns ur a nc e Ta xa tt hee ffe c t i v er a t e

Dol l a r s Pe r c e nt a ge $ 290 , 000 * 40 . 0 % $( 2 0, 000 * * ) ( 2 . 8%* * * ) 6, 00 0* * * * . 8%* * * * * $2 76 , 0 00

38 . 1 %* * * * * *

*$ 72 5, 000×40 % * *$50 , 000×40% * * *$20 , 0 ...