Income Taxes

Which of the following is least accurate of taxes payable?

Which of the following is least likely an example of a permanent difference?

Under financial accounting, a company was required to fully expense $100,000 of R&D costs.

Under tax reporting, the company was allowed to fully capitalise the R&D cost, and amortise it on a straight-line basis, with a useful life of 4 years, and zero residual value.  The company’s income is taxed at 40%.

What is the likely deferred tax at the end of the first year?

Mr Crafty is the newly appointed CEO of Puppy Corp. He wants to reduce the net income for the current period to make the current performance look bad, and increase the net income for future periods to make the future performance look good.

What will Mr Crafty most likely do?

A company has a total of $40,000 DTA, and $70,000 DTL on its balance sheet.

The income tax rate is projected to rise from 35% to 40% next year.

Which of the following is most likely to happen to the income tax expense next year, given that all else remain constant?

A retailer uses the LIFO cost flow method to account for its inventory.  According to tax laws, the retailer has to use the FIFO method instead.

In an inflationary environment, what is the most likely result on its balance sheet?

WinterWool Corp made a loss in the current year.  Under local tax laws, it is allowed to book a tax loss carryforward of $40,000.  However, WinterWool thinks that it is improbable that this tax loss carryforward can be realised in the future, as it does not expect to return to profitability.

If WinterWool reports under US GAAP, what is the most appropriate treatment for this?