26.An analyst gathered the following data for Alice Company.

§ Alice Company reported a pretax income of $400,000 in its income statement for the period ended 31 December 2002 .

§ Included in its pretax income are: (1) interest received on tax-free municipal bonds $50,000 and (2) rent expense of $20,000. (Only $10,000 was paid in cash for rent during 2002).

§ Alice follows cash basis for tax reporting.

§ Assume a tax rate of 40%.

What is the income tax expense that Alice should report on its income statement for the year ended 31 December 2002?

A)   $132,000.

B)   $140,000.

C)   $144,000.

D)   $160,000.

27.Based on the information provided, which of the following is TRUE with respect to deferred tax during 2002? Deferred tax:

A)   will remain unchanged.

B)   asset will decrease by $4000.

C)   asset will increase by $4,000.

D)   liability will increase by $4,000.

28.All else equal, when a company issues bonds at a premium, the debt/equity ratio will show:

A)   stable trend over the life of the bond.

B)   a decreasing trend over the life of the bond.

C)   an increasing trend over the life of the bond.

D)   Cannot be determined based on the information provided.

29.Indata Company sold a specially manufactured item for $5,000,000 on December 31, 2006. The item was sold on an installment sale basis, with $1,000,000 paid on the date of the sale and $4,000,000 to be paid in four annual installments of $1,000,000 plus interest at the market rate of 6 percent. Indata’s tax rate is 40 percent and its costs to construct the item were $2,500,000. Indata recognizes the entire amount of the sale as income on the date the sale is made for accounting purposes, but not until cash is received for tax purposes.

On its balance sheet dated December 31, 2006, Indata will, as a result of the transaction described above, increase its deferred tax:

A)   liability by $200,000.

B)   asset by $800,000.

C)   asset by $200,000.

D)   liability by $800,000.

30.The Puchalski Company reported the following:

Puchalski has no deferred tax asset or liability prior to Year 1. If the tax rate is 40 percent, what is the amount of the deferred tax asset or liability reported at the end of Year 3?

A)   Asset of $80.

B)   Liability of $80.

C)   Liability of $120.

D)   Asset of $120.

答案和详解如下：

26.An analyst gathered the following data for Alice Company.

§ Alice Company reported a pretax income of $400,000 in its income statement for the period ended 31 December 2002 .

§ Included in its pretax income are: (1) interest received on tax-free municipal bonds $50,000 and (2) rent expense of $20,000. (Only $10,000 was paid in cash for rent during 2002).

§ Alice follows cash basis for tax reporting.

§ Assume a tax rate of 40%.

What is the income tax expense that Alice should report on its income statement for the year ended 31 December 2002?

A)   $132,000.

B)   $140,000.

C)   $144,000.

D)   $160,000.

The correct answer was B)

$400,000 – 50,000 = $350,000. $350,000 × 40% = $140,000

27.Based on the information provided, which of the following is TRUE with respect to deferred tax during 2002? Deferred tax:

A)   will remain unchanged.

B)   asset will decrease by $4000.

C)   asset will increase by $4,000.

D)   liability will increase by $4,000.

The correct answer was

Since only $10,000 of the rent expense will be allowed per tax returns, a deferred tax asset of $4,000 will result ($10,000 × 40%).

28.All else equal, when a company issues bonds at a premium, the debt/equity ratio will show:

A)   stable trend over the life of the bond.

B)   a decreasing trend over the life of the bond.

C)   an increasing trend over the life of the bond.

D)   Cannot be determined based on the information provided.

The correct answer was B)

Net book value of debt decreases from amortization of the premium, while stockholders’ equity increases (due to increasing earnings). This decreases debt/equity ratio over the life of the bond.

29.Indata Company sold a specially manufactured item for $5,000,000 on December 31, 2006. The item was sold on an installment sale basis, with $1,000,000 paid on the date of the sale and $4,000,000 to be paid in four annual installments of $1,000,000 plus interest at the market rate of 6 percent. Indata’s tax rate is 40 percent and its costs to construct the item were $2,500,000. Indata recognizes the entire amount of the sale as income on the date the sale is made for accounting purposes, but not until cash is received for tax purposes.

On its balance sheet dated December 31, 2006, Indata will, as a result of the transaction described above, increase its deferred tax:

A)   liability by $200,000.

B)   asset by $800,000.

C)   asset by $200,000.

D)   liability by $800,000.

The correct answer was D)

Accounting profit from the installment sale was ($5,000,000 - $2,500,000 =) $2,500,000. Income tax expense is calculated based on 40 percent of accounting profit, so tax expense from the transaction is ($2,500,000 * 0.40 =) $1,000,000. Income taxes payable, as of December 31, 2006, were (($1,000,000 – ($2,500,000 * $1,000,000 / $5,000,000)) * 0.40 =) $200,000. The excess of income tax expense over income taxes payable is a credit to deferred tax liability of ($1,000,000 - $200,000 =) $800,000.

30.The Puchalski Company reported the following:

	Year 1	Year 2	Year 3	Year 4
Income before taxes	$1,000	$1,000	$900	$800
Taxable income	$800	$900	$900	$1,000

Puchalski has no deferred tax asset or liability prior to Year 1. If the tax rate is 40 percent, what is the amount of the deferred tax asset or liability reported at the end of Year 3?

A)   Asset of $80.

B)   Liability of $80.

C)   Liability of $120.

D)   Asset of $120.

The correct answer was C)

	Year 1	Year 2	Year 3
Income tax expense	$400	$400	$360
Taxes paid	$320	$360	$360
Deferred tax liability	$80	$120	$120