Investment Tools: Financial Statement Analysis: Liabilities (стр. 3 )

Since pretax income ($97,500) exceeds the taxable income ($65,500), United Technologies will have a deferred tax liability of $10,880 = [( $97,500 - $65,500)(.34)]

Setup Text:

An analyst has gathered the following tax information: 

Year 1 ??????????? ???????????Year 2

Pretax Income?? ???????????$60,000 $60,000

Taxable Income? 50,000 ?? 65,000

The current tax rate is 40 percent. Assume the tax rate is reduced to 30 percent and the change is enacted at the beginning of Year 2.

Question ID: 24727 Taxes payable in Year 1 are:

A.

$18,000.

B.

$20,000.

C.

$15,000.

	D.	$24,000.

B

Taxes Payable = Taxable Income * Current Tax Rate = $50,000 * 40%= $20,000. The taxes payable will be based on the current tax rate of 40%.

Question ID: 24727 What is the deferred tax liability in Year 1?

A.

C. $ 2,000.

B.

B. $1,500.

C.

D. $4,000.

	D.	A. $3,000.

D

Deferred Tax Liability = (Pretax Income - Taxable Income) * 30% = ($60,,000) * 30% = $3,000.

SFAS 109 requires adjustments to deferred tax assets and liabilities to reflect the impact of a change in tax rates or tax laws.

Question ID: 24727 Total Income Tax Expense for Year 1 is:

A.

C. $18,000.

B.

B. $17,000.

C.

D. $24,000.

	D.	A. $23,000.

D

Total Income Tax Expense = Taxes Payable - Deferred Tax Asset + Deferred Tax Liability = $20,+ 3,000 = $23,000.

Question ID: 14986 Year: 1998 1999 2000 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 Assume an income tax rate of 40 percent The company's income tax expense for 1998 is:

A.

$0.

B.

$70.

C.

$50.

	D.	$60.

D

[$150(0.40)]

Setup Text:

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.

Question ID: 24682 What is the tax payable for year one?

A.

$1,626.

B.

$1,130.

C.

$779.

	D.	$1,909.

B

Tax payable for year 1 will be $1,130 = [{$7,$12,676 x.35)} x.41]

Question ID: 24682 What is the deferred tax liability as of the end of year one?

A.

$1,129

B.

$1,909

C.

$320

	D.	$780

D

The deferred tax liability for year 1 will be $780.
Pretax Income = $4,657 = ( $7,192 - $2,535)
Taxable Income = $2,755 = ($7,192 - $4,437)
Deferred Tax liability = $780 = [($4,657 - $2,755)(.41)]

Question ID: 24682 What is the deferred tax liability as of the end of year three?

A.

$2,079.

B.

$1,029.

C.

$1,909.

	D.	$780.

A

The deferred tax liability at the end of year 3 will be $2,079 = ($780 + $780 + $519).
Pretax Income = $4,657 ( $7,192 - $2,535)
Taxable Income = $3,389 [$7,$12,676 x.30)]
Deferred Tax liability for year 3 = $519 [($4,657 - $3,389)(.41)]

Deferred Tax liability for year 1 = $780 [($4,657 - $2,755)(.41)]
Deferred Tax liability for year 2 = $780 [($4,657 - $2,755)(.41)]

Question ID: 14985 An analyst gathered the following information about a company: Pretax income of $10,000 Taxes payable of $2,500 Deferred taxes of $500 Tax expense of $3,000 What is the firm's effective tax rate?

A.

5%.

B.

30%.

C.

25%.

	D.	35%.

B

Question ID: 14965 Which of the following statements about deferred tax liabilities and assets is FALSE?

A.

Tax rate changes have an impact on deferred tax assets and liabilities.

B.

Growth of the firm may have a tendency to increase deferred taxes.

C.

When tax payments increase this means that deferred tax liabilities have reversed.

	D.	If deferred tax liabilities are not expected to reverse they are considered a permanent increase in liabilities.

D

Question ID: 14978 Apex Company, a cash-basis taxpayer, prepares accrual-basis financial statements. In its 2000 balance sheet, Apex's deferred income tax liabilities increased compared with those reported for 1999. Which of the following changes would cause this increase in deferred income tax liabilities? An increase in prepaid utilities. An increase in rent receivable. An increase in warranty obligation.

A.

Both A and B.

B.

Both B and C.

C.

A only.

	D.	C only.

A

Question ID: 14975 If timing differences that give rise to a deferred tax liability are not expected to reverse then the deferred tax:

A.

should be carried forward to the next period until the reversal takes place.

B.

should be considered as a decrease or increase in equity.

C.

must be reduced by a valuation allowance.

	D.	should be considered an asset or liability.

B

Question ID: 14997 A firm purchased a piece of equipment for $6000 with the following information provided: Revenue will increase by $15,000 per year. The equipment has a 3-year life expectancy and no salvage value. The firm's tax rate is 30%. Straight-line depreciation is used for financial reporting and double declining is used for tax purposes. How will the firm will report the deferred taxes on the balance sheet for years 1 and 2?

A.

Year 1 = 3300, Year 2 = 4100

B.

Year 1 = 600, Year 2 = 400

C.

Year 1 = 4500, Year 2 = 4500

	D.	Year 1 = 3900, Year 2 = 3900

B

Using DDB:

	Yr. 1	Yr. 2
Revenue	15,000	15,000
Dep.	? 4,000	? 1,333
Taxable Inc	11,000	13,667
Taxes Pay	? 3,300	? 4,100

?

Using SL:

	Yr. 1	Yr. 2
Revenue	15,000	15,000
Dep.	? 2,000	? 2,000
Pretax Inc	13,000	13,000
Taxe Exp	? 3,900	? 3,900

Deferred taxes year 1 = 3,900 – 3,300 = 600

Deferred taxes year 2 = 3,900 – 4,100 + previously deferred taxes = -200 + 600 = 400

Question ID: 14969 The following information is regarding an asset a firm purchased for $100,000. The asset has a 5-year useful life and no salvage value. The asset generates $30,000 of annual revenue for 5-years. Tax rate is 35 percent. The business depreciates the asset over 4 years on a straight-line basis. Taxes payable in year 5 are?

A.

$8750.

B.

$5250.

C.

$10500.

	D.	$1750.

C

By year five the asset has been fully depreciated.

$30,000 revenue - $0 depreciation = $30,000 income

($30,000 income)(.35 tax rate) = $10,500

1.B: Analysis of Financing Liabilities

Question ID: 15004 Which of the following statements is FALSE? When a bond is issued at a discount:

A.

the interest expense will increase over time.

B.

the interest expense will be equal to the coupon payment plus the amortization of the discount.

C.

the initial liability listed in the balance sheet will be less than the par value of the bond.

	D.	cash flows from financing will be increased by the par value of the bond issue.

D