Question

2) At the end of 2017, Hoover company had reported a deferred tax asset of $72 million with no valuation allowance. At December 31, 2018, the account balances of Hoover showed a deferred tax asset of $80 million before assessing the need for a valuation allowance and income taxes payable of $56 million. Hoover determined that it was more likely than not that 20% of the deferred tax asset ultimately would not be realized. Hoover made no estimated tax payuments during 2018. What amount should Hoover report as income tax expense in its 2019 income statement? a. $64 million b. $60 million C. $56 million d. $50 million 3) During 2018, its fir year operations, Travis Inc. reported a net operation loss of $8000 for financial reporting and tax purposes. The enacted tax rate is 25%. In its 2019 income (loss) statement, Travis will report a net loss of: a. $5,000 b. $3,000 c. $8000 d. $6000 4) For questions (4&5] The following information relates to Forever Freightways for its first year of operations (data in millions of dollars): Pretax accounting income: $210 million Pretax accounting income included: Overweight fines (not deductible for tax purposes): 5 Depreciation expense: 80 Depreciation in the tax return using MACRS: 110 The applicable tax rate is 40%. There are not other temporary or permanent differences. Forever's balance sheet at the end of its first year would report: a) A deferred tax asset of $2 million among noncurrent assets. b) A deferred tax liability of $10 million among noncurrent liabilities. c) A deferred tax liability of $12 million among noncurrent liabilities. d) A deferred tax liability of $14 among current liabilities

Answer 1

2 Increase in Deferred tax assset in FY 2018 Opening Closing in Millions 72 80 -8 56 PL PL PL income tax expense Income tax payable 64 Answer A 20% reduction in value 20% 16 3 Loss 8000 Deferred tax -2000 Answer D 6000 In Millions Depreciation as per accounting as per tax 110 Temperory Difference 30 40% Answer C 12