6.A company purchased a new pizza oven directly from Italy for $12,676. It will work for 5 years and has no salvage value. The tax rate is 41 percent, and annual revenues are constant at $7,192. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35 percent in years 1 and 2, and 30.00 percent in year 3. For purposes of this exercise ignore all expenses other than depreciation.

What is the net income and depreciation expense for year one for financial reporting purposes?

A)                     $4,657                             $2,748

B)                     $2,535                             $3,169

C)                     $2,748                             $2,535

D)                     $3,169                             $4,657

7.Assume an income tax rate of 40 percent and zero deferred tax liability on 31 December 2001.

The deferred tax liability to be shown in the 31 December 2003, balance sheet and the 31 December 2004 balance sheet, is:

A)                       $0                                        $10

B)                       $25                                      $20

C)                       $10                                       $0

D)                       $20                                      $25

8.A dance club purchased new sound equipment for $25,352. It will work for 5 years and has no salvage value. Their tax rate is 41 percent, and their annual revenues are constant at $14,384. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35 percent in years 1 and 2 and 30 percent in Year 3. For purposes of this exercise ignore all expenses other than depreciation.

Assume that the tax rate changes for years 4 and 5 from 41 percent to 31 percent. What will be the deferred tax liability as of the end of year three?

A)   $3,144.

B)   $2,948.

C)   $1,443.

D)   $1,039.

9.Because the tax rate changes for years 4 and 5 from 41 percent to 31 percent, net income will have to be adjusted for financial reporting purposes in year three. What is the amount of this adjustment?

A)   $1,014.

B)   $747.

C)   $1,030.

D)   $1,909.

10.Corcoran Corp acquired an asset on 1 January 2004, for $500,000. For financial reporting, Corcoran will depreciate the asset using the straight-line method over a 10-year period with no salvage value. For tax purposes the asset will be depreciated straight line for five years and Corcoran’s effective tax rate is 30 percent. Corcoran’s deferred tax liability for 2004 will:

A)   increase by $15,000.

B)   decrease by $50,000.

C)   decrease by $15,000.

D)   increase by $50,000.

答案和详解如下：

6.A company purchased a new pizza oven directly from Italy for $12,676. It will work for 5 years and has no salvage value. The tax rate is 41 percent, and annual revenues are constant at $7,192. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35 percent in years 1 and 2, and 30.00 percent in year 3. For purposes of this exercise ignore all expenses other than depreciation.

What is the net income and depreciation expense for year one for financial reporting purposes?

Net Income

Depreciation Expense

A)                                        $4,657   $2,748

B)                                        $2,535   $3,169

C)                                        $2,748   $2,535

D)                                        $3,169   $4,657

The correct answer was C)

Net income in year 1 for financial reporting purposes will be $2,748 = [($7,192 - $2,535)(1 - 0.41)]

The annual depreciation expense on financial statements will be $2,535 = ($12,676 /5 years)

Year ending 31 December:		2002	2003	2004
Income Statement:
	Revenues after all expenses other than depreciation	$200	$300	$400
	Depreciation expense	50	50	50
	Income before income taxes	$150	$250	$350
Tax return:
	Taxable income before depreciation expense	$200	$300	$400
	Depreciation expense	75	50	25
	Taxable income	$125	$250	$375

7.Assume an income tax rate of 40 percent and zero deferred tax liability on 31 December 2001.

The deferred tax liability to be shown in the 31 December 2003, balance sheet and the 31 December 2004 balance sheet, is:

2003

2004

A)                                        $0  $10

B)                                        $25 $20

C)                                        $10 $0

D)                                        $20 $25

The correct answer was C)

First, for 2003, remember that the deferred tax liability (DTL) is cumulative so, it includes the balance from prior years, (assume 2002 in this example since we have no other information).

DTL cumulative = (tax return depr. – financial statement depr.) × tax rate + DTL from previous year

§ DTL for 2002: (75–50) × 0.4 + 0 = 10

§ DTL for 2003: (50–50) × .4 + 10 = 10

§ DTL for 2004: (25–50) × .4 + 10 = 0

8.A dance club purchased new sound equipment for $25,352. It will work for 5 years and has no salvage value. Their tax rate is 41 percent, and their annual revenues are constant at $14,384. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35 percent in years 1 and 2 and 30 percent in Year 3. For purposes of this exercise ignore all expenses other than depreciation.

Assume that the tax rate changes for years 4 and 5 from 41 percent to 31 percent. What will be the deferred tax liability as of the end of year three?

A)   $3,144.

B)   $2,948.

C)   $1,443.

D)   $1,039.

The correct answer was A)           

Deferred tax liability at the end of year three, after the change in tax rate will be $3,144 ($1,178.93 + $1,178.93 + $786.16).
Deferred Tax liability for year 1 = $1,178.93 = [($9,314 - $5,511)(0.31)].
Deferred Tax liability for year 2 = $1,178.93 = [($9,314 - $5,511)(0.31)].
Deferred Tax liability for year 3 = $786.16 = [($9,314 - $6,778)(0.31)].

9.Because the tax rate changes for years 4 and 5 from 41 percent to 31 percent, net income will have to be adjusted for financial reporting purposes in year three. What is the amount of this adjustment?

A)   $1,014.

B)   $747.

C)   $1,030.

D)   $1,909.

The correct answer was A)

The deferred tax liability will decrease by $1,014 = ($4,158 - $3,144) due to the new lower tax rate. An adjustment of $1,014 in tax expense will result in an increase in net income by the same amount of $1,014.
Deferred tax liability at the end of year 3 with tax rate of 41% = $4,158.
Deferred tax liability at the end of year 3 with tax rate of 31% = $3,144.

10.Corcoran Corp acquired an asset on 1 January 2004, for $500,000. For financial reporting, Corcoran will depreciate the asset using the straight-line method over a 10-year period with no salvage value. For tax purposes the asset will be depreciated straight line for five years and Corcoran’s effective tax rate is 30 percent. Corcoran’s deferred tax liability for 2004 will:

A)   increase by $15,000.

B)   decrease by $50,000.

C)   decrease by $15,000.

D)   increase by $50,000.

The correct answer was A)

straight-line depreciation per financial reports = 500,000 / 10 = $50,000

tax depreciation = 500,000 / 5 = $100,000

temporary difference = 100,000 - 50,000 = $50,000

deferred tax liability will increase by $50,000 x 30% = $15,000