B. a deferred tax liability.

C. no deferred tax asset or liability.

11. A company receives advance payments from customers that are immediately taxable but

will not be recognized for accounting purposes until the company fulfi lls its obligation.

The company will most likely record

A. a deferred tax asset.

B. a deferred tax liability.

C. no deferred tax asset or liability.

Use the following disclosure related to income taxes to answer Problems 12 – 14.

NOTE I

Income Taxes

The components of earnings before income taxes are as follows ($ thousands):

2007 2006 2005

Earnings before income taxes:

United States $88,157 $75,658 $59,973

Foreign 116,704 113,509 94,760

Total $204,861 $189,167 $154,733

The components of the provision for income taxes are as follows ($ thousands):

2007 2006 2005

Income taxes

Current:

Federal $30,632 $22,031 $18,959

Foreign 28,140 27,961 22,263

$58,772 $49,992 $41,222

Deferred:

Federal ($4,752) $5,138 $2,336

Foreign 124 1,730 621

(4,628) 6,868 2,957

Total $54,144 $56,860 $44,179

12. In 2007, the company ’ s U.S. GAAP income statement recorded a provision for income

taxes closest to

A. $30,632.

B. $54,144.

C. $58,772.

13. The company ’ s effective tax rate was highest in

A. 2005.

B. 2006.

C. 2007.

14. Compared to the company ’ s effective tax rate on U.S. income, its effective tax rate on

foreign income was

A. lower in each year presented.

B. higher in each year presented.

C. higher in some periods and lower in others.

15. Zimt AG presents its fi nancial statements in accordance with International Financial

Reporting Standards. In 2007, Zimt discloses a valuation allowance of € 1,101 against

total deferred tax assets of € 19,201. In 2006, Zimt disclosed a valuation allowance of

€ 1,325 against total deferred tax assets of € 17,325. The change in the valuation allowance

most likely indicates that Zimt ’ s

A. deferred tax liabilities were reduced in 2007.

B. expectations of future earning power has increased.

C. expectations of future earning power has decreased.

16. Cinnamon, Inc. recorded a total deferred tax asset in 2007 of $12,301, offset by a

$12,301 valuation allowance. Cinnamon most likely

A. fully utilized the deferred tax asset in 2007.

B. has an equal amount of deferred tax assets and deferred tax liabilities.

C. expects not to earn any taxable income before the deferred tax asset expires.

Use the following income tax disclosure to answer Problems 17 – 19.

The tax effects of temporary differences that give rise to deferred tax assets and liabilities

are as follows ($ thousands):

2007 2006

Deferred tax assets:

Accrued expenses $8,613 $7,927

Tax credit and net operating loss carryforwards 2,288 2,554

LIFO and inventory reserves 5,286 4,327

Other 2,664 2,109

Deferred tax assets 18,851 16,917

Valuation allowance (1,245) (1,360)

Net deferred tax assets $17,606 $15,557

2007 2006

Deferred tax liabilities:

Depreciation and amortization (27,338) (29,313)

Compensation and retirement plans (3,831) (8,963)

Other (1,470) (764)

Deferred tax liabilities (32,639) (39,040)

Net deferred tax liability ($15,033) ($23,483)

17. A reduction in the statutory tax rate would most likely benefi t the company ’ s

A. income statement and balance sheet.

B. income statement but not the balance sheet.

C. balance sheet but not the income statement.

18. If the valuation allowance had been the same in 2007 as it was in 2006, the company

would have reported $115 higher

A. net income.

B. deferred tax asset.

C. income tax expense.

19. Compared to the provision for income taxes in 2007, the company ’ s cash tax payments

were

A. lower.

B. higher.

C. the same.

Use the following income tax disclosure to answer Problems 20 – 22.

A company ’ s provision for income taxes resulted in effective tax rates attributable to loss

from continuing operations before cumulative effect of change in accounting principles that

varied from the statutory federal income tax rate of 34 percent, as summarized in the table

below.

Date: 2016-03-03; view: 799