1. At December 31, 2021, Vermont Industries reported three temporary differences
etween accounting and taxable income. Vermont had $25,000 of future deductible
amounts resulting from accrued wa
anty liabilities. Vermont offers customers a one
year wa
anty on its products. Vermont had $55,000 in future taxable amounts
associated with depreciation on property and equipment, and $15,000 in future taxable
amounts associated with prepaid expenses that expire in XXXXXXXXXXNo temporary
differences existed at December 31, XXXXXXXXXXThe income tax rate is 40%. Vermont would
eport the following amount(s) related to defe
ed taxes on its year end December 31,
2021 balance sheet:
A) $18,000 net noncu
ent defe
ed tax liability.
B) $4,000 cu
ent defe
ed tax asset and $22,000 noncu
ent defe
ed tax liability.
C) $10,000 noncu
ent defe
ed tax asset and $28,000 noncu
ent defe
ed tax liability.
D) $4,000 noncu
ent defe
ed tax asset and $22,000 noncu
ent defe
ed tax liability.
2. Maine Company reported a pretax operating loss of $150,000 for financial reporting and
tax purposes in XXXXXXXXXXThe enacted tax rate is 40% for XXXXXXXXXXand subsequent years. In
2019, Maine reported taxable income of $42,000 and paid $14,700 in income taxes; and
in XXXXXXXXXXMaine reported taxable income of $40,000 and paid $16,000 in taxes. Assume
Maine Company manufactures and sells automotive parts. In addition, Maine expects to
generate positive operating profits and taxable income in the future. The after tax net loss
eported by Maine on its year end December 31, XXXXXXXXXXincome statement is:
A) $119,300
B) $150,000
C) $90,000
D) $92,100
3. Ohio Corp. reported a defe
ed tax liability of $6,000,000 for the year ended December
31, 2020, when the tax rate was 40%. The defe
ed tax liability was related to a
temporary difference of $15,000,000 caused by an installment sale in XXXXXXXXXXThe
temporary difference is expected to reverse in years XXXXXXXXXXthrough XXXXXXXXXXas $5,000,000
of installment income is expected to be recognized as taxable income in each of those
years. There are no other temporary differences. A new tax law was passed in XXXXXXXXXXwith
the tax rate remaining 40% through December 31, 2021, then increase to 45% for tax
years beginning after December 31, XXXXXXXXXXTaxable income for the year XXXXXXXXXXis
$30,000,000. Income tax expense reported by Ohio on its year end December 31, 2021
income statement is:
A) $12,000,000
B) $10,500,000
C) $10,000,000
D) $11,250,000
Use the following to answer questions 4 and 5:
Montana Inc. sells computer systems. Montana leases computers to Utah Company on
June 30, XXXXXXXXXXThe computers cost Montana $12 million to manufacture. The lease is
non-cancelable and has the following terms: ● Lease payments: $2,466,754
semiannually; first payment due June 30, 2021; remaining payments due December 31
and June XXXXXXXXXXeach year through December 31, 2025. ● Lease term: 5 years (10
semi-annual payments). ● No residual value; no bargain purchase option. ● Economic
life of equipment: 5 years. ● Implicit interest rate and lessee's incremental bo
owing
ate: 10% per year. ● Fair value of the computers at June 30, 2021: $20 million.
Collectability of the rental payments is reasonably assured, and there are no lessor
costs yet to be incu
ed.
4. Montana would account for this lease as:
A) A finance lease.
B) A sales type lease without selling profit.
C) A sales type lease with selling profit.
D) An operating lease.
5. The lease payable balance on Utah's books after the December 31, XXXXXXXXXXpayment is
closest to:
A) $15,943,154
B) $17,533,246
C) $21,000,000
D) $15,066,492
6. New Mexico Corporation leased equipment under an agreement that qualifies as a
finance lease. The present value of the minimum lease payments is $120,000. The lease
term is five years. After the expiration of the five year lease, the lease contains a bargain