Question

11. During 2019, its first year of operations, Aaron Inc. reported a net operating loss of $4,000 for financial reporting and tax purpose. The enacted tax rate is 25%. In its 2019 income (loss) statement, Aaron will report a net loss of: a. $5,000 b. $3,000 C. $2,000 d. $1,000 12. At the end of 2018, HD Company had reported a deferred tax asset of $90 million with no valuation allowance. At December 31, 2019, the account balances of HD Company showed a Deferred tax asset of $120 million before assessing the need for valuation allowance and income taxes payable of $80 million. HD determined that it is more than likely than not that 30% of the deferred tax asset ultimately would not be realized. HD made no estimated tax payments during 2019. What amount should HD report as income tax expense in its 2019 income statement? a. $116 Million b. $86 Million C. $ 80 million d. $50 Million 13. Brady's listing of deferred tax assets and liabilities includes the following for operations in the tax jurisdiction of Tambura and Nileboo: Tambura: DTA of $5M DTL of $14M Nileboo: DTA of $18M DTL of $3M Brady files separate tax returns in Tambura and Nileboo. Brady's balance sheet would include the following disclosure of deferred tax assets and liabilities: a) A current DTA of $4M b) A current DTL of $17M and a noncurrent DTA of $21M c) A noncurrent DTL of $19M and a noncurrent DTA of $23M d) A noncurrent DTL of $9M and a noncurrent DTA of $15M 14) For year 2019, centipede corp. had a $93 million in pretax accounting income, which includes an interest revenue of $1 from municipal bonds, the amount also included a warranty expense of $10 and $15 million in depreciation expense. Warranty cost of $2 were paid, and depreciation deductions in the tax return amounted to $35. In the absence of other temporary or permanent differences, what was centipede's 2019 net income, assuming a tax rate of 25%? a) $70 million b) $76 million c) $81 million Page 3 | 4 - Q + d) $84 million

Answer 1

11 Net Operating Loss for 2019 = $4,000 Tax Rate = 25% Net loss to be reported in 2019 will be:- Net Loss = 4,000 * 25% Net loss = $1,000 OPTION D 12 Deferred Tax assets end of 2018 = $ 90 Million Deferred Tax assets end of 2019 = $ 120 Million Income Tax Payable = $ 80 Million 30% of deferred tax assets would not be realised 30% of 120 Million = $36 Million Deferred tax assets will get reduced and P&L will be debited Income tax expense 2019 = $ 80 M +$ 36 M = $ 116 Million OPTION A 13 For Brady as a whole:- Tambura = DTA of $5M and DTL of $ 14M Tambura = Net effect = DTL of $ 9M Nileboo = DTA of $ 18M and DTL of $3M Nileboo = Net effect = DTA of $ 15M A noncurrent DTL of $ 9M and noncurrent DTA of $15M OPTION D 14 Pretax Accounting Income = $ 93 Million Less :- Depreciation = $ 35 Million Less :- Warranty Paid = $2 Million Add :- Warranty Expense = $ 10 Million Add :- Depreciation Expense = $ 15 Million ADJUSTED PRETAX INCOME FOR TAX PURPOSE = $ 81 Million Interest income will get taxed at both places OPTIONC