A Net Operating Loss Carryforward Creates

Question: The tax rate used to measure deferred tax assets and liabilities is the ___ tax rate in the year(s) the temporary difference reverses. (Enter only one word.)
Answer: enacted
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Question: When a phased-in change in tax rates is scheduled to occur,
1. the tax rate in the current year is multiplied by the amounts reversing in all future years.
2. the tax rate of each future year is multiplied by the amounts reversing in each of those years.
3. the highest tax rate out of all years affected is multiplied by the amounts reversing in all future years.
Answer: 2
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Question: Liberty Corp. receives rent in advance of $100,000 in 20X1. The timing difference is expected to reverse $40,000 in 20X2 and $60,000 in 20X3. The enacted tax rates are 20% in 20X1, 25% in 20X2, and 30% in 20X3. What is the amount in the deferred tax asset account at December 31, 20X1?
1. $25,000
2. $30,000
3. $20,000
4. $8,000
5. $28,000
Answer: 5
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Question: When the enacted tax rates change, deferred tax assets and liabilities are revalued and the resulting amount of the adjustment is reflected in which account(s)?
1. Nonoperating gain or loss
2. Other comprehensive income
3. Operating income
Answer: 3 and 4
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Question: Madhu Corp. receives rent in advance of $100,000 in 20X1. The timing difference is expected to reverse $40,000 in 20X3 and $60,000 in 20X4. The enacted tax rates are 30% in 20X1 and 20X2. At the end of 20X2, the balance in the deferred tax asset account is $30,000. In 20X2, the tax laws are changed, and the new enacted tax rate for 20X3 and thereafter is 40%. Which of the following entries would be included in the journal entry to adjust the deferred tax account at December 31, 20X2?
1. Credit income taxes payable $10,000.
2. Debit deferred tax asset $40,000.
3. Debit deferred tax asset $10,000.
4. Credit tax expense $10,000.
Answer: 5
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Question: What is the tax rate used to measure deferred tax assets and liabilities?
1. enacted rate for the current year
2. statutory rate for the current year
3. effective rate for the current year
4. effective rate in the year the differences reverse
5. enacted rate in the year the differences reverse
Answer: 3
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Question: The total of all future taxable amounts is multiplied by the _____ tax rate to determine the appropriate balance for the deferred tax liability account.
1. current
2. historical
3. enacted
Answer: 3
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Question: When enacted tax rates differ in future years, the amounts reversing in future years are multiplied by what to determine the deferred tax liability and/or asset?
1. The highest tax rate out of all years affected by the deferred tax asset or liability.
2. The tax rate enacted for the current year when the deferred tax is being recorded.
3. The specific tax rate for each of the years a reversal will occur.
Answer: 3, 4, and 5
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Question: Newberry Corp. has pretax accounting income of $100,000. Newberry has tax depreciation in excess of financial accounting depreciation of $20,000. Bad debt expense on the income statement was $5,000, and bad debts for tax reporting was $2,000. The enacted tax rate is 40%. Which of the following entries will be included in the journal entry to record income tax at year-end? (Select all that apply.) 1. Debit income tax expense $41,200.
2. Credit income taxes payable $40,000.
3. Debit deferred tax asset $1,200.
4. Credit income taxes payable $33,200.
5. Credit deferred tax liability $8,000.
Answer: 1
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Question: Rocky Corp. receives rent in advance of $100,000 in 20X1. The timing difference is expected to reverse $30,000 in 20X2 and $70,000 in 20X3. The enacted tax rates are 30% in 20X1 and 20X2, and 40% in 20X3. What is the amount in the deferred tax asset account at December 31, 20X1?
1. $37,000
2. $21,000
3. $30,000
4. $28,000
Answer: 3
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Question: When is the effect of a change in tax rate on deferred tax liabilities and deferred tax assets reflected in the financial statements?
1. Never.
2. In the year the deferred tax liability or asset reverses.
3. In the year of the enactment of the change in tax rate.
Answer: 2
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Question: Rice Corp. has tax depreciation in excess of financial reporting depreciation of $100,000 in 20X1. The timing difference is expected to reverse $30,000 in 20X2 and $70,000 in 20X3. In 20X1, the enacted tax rates were 40% for 20X1 and thereafter. However, during 20X2, the enacted rate was changed to 30% for years 20X3 and thereafter. Rice records the journal entry for deferred taxes at the end of 20X2 at the tax rate of 40%, and then prepares an adjusting entry to appropriately revalue the deferred tax account at year-end. Which of the following entries is required to record the adjusting entry for the change in enacted tax rates?
1. Credit deferred tax asset $7,000.
2. Debit deferred tax liability $7,000.
3. Credit deferred tax liability $21,000.
4. Debit income tax expense $21,000.
Answer: 3 and 4
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Question: All temporary differences are categorized in which of the following ways? (Select all that apply.)
1. Past income amounts
2. Past taxable amounts
3. Future taxable amounts
4. Future deductible amounts
Answer: 2
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Question: A net operating loss occurs when:
1. financial reporting income is greater than taxable income.
2. taxable income is less than tax-deductible expenses.
3. income is not subject to tax but is subject to financial reporting.
Answer: 1, 2, and 3
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Question: Crane Corp. has pretax accounting income of $100,000. Crane has rent received in advance of $10,000. It is expected that Crane will report the revenue on the income statement in the following year when the performance obligation is satisfied. Crane has tax depreciation that is $25,000 more than depreciation expense for financial reporting purposes. The enacted tax rate is 30%. Which of the following entries will be included in the journal entry to record income tax at year-end? (Select all that apply.)
1. Credit taxes payable $25,500.
2. Credit deferred tax liability $7,500.
3. Debit deferred tax asset $3,000.
4. Debit income tax payable $30,000.
5. Credit deferred tax liability $4,500.
Answer: 1
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Question: A net operating loss carryforward creates a tax benefit on the income statement in the year
1. the net operating loss occurs.
2. when the carryforward is used.
3. when the net operating loss carryforward expires.
4. when the deferred tax asset reverses.
Answer: 2
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Question: Peachtree Corp. is a merchandiser in its fourth year of operations. Peachtree had taxable income of $20,000 in year 1, $30,000 in year 2, and $50,000 in year 3. In year 4, Peachtree incurred a $400,000 net operating loss for tax purposes. The NOL carryforward is
1. $320,000.
2. $400,000.
3. $480,000.
4. $300,000.
Answer: 3 and 4
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Question: Which of the following are benefits of a net operating loss carryforward? (Select all that apply.)
1. The net operating loss carryforward indicates increased earnings in the future.
2. They provide an unprofitable company reason to acquire a profitable company.
3. The potential tax benefit can provide cash savings for the company in the future.
4. They make an unprofitable company an attractive target for acquisition.
Answer: 1 and 2
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Question: Which of the following are true when there are multiple temporary differences (select all that apply)?
1. The total of the future taxable amounts is multiplied by the future tax rate to determine the balance of deferred tax liabilities.
2. The total of the future deductible amounts is multiplied by the future tax rate to determine the balance of deferred tax assets.
3. The net of the future taxable and deductible amounts is multiplied by the future tax rate to determine the net deferred tax liabilities or assets.
Answer: 2
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Question: A ______ occurs when tax deductible expenses exceed taxable revenues.
1. tax-exempt loss
2. net operating loss
3. tax-deferred annuity
4. deferred tax liability
Answer: 4
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Question: A net operating loss carryforward
1. increases tax deductions in future years.
2. creates deferred tax liabilities in future years.
3. reduces tax credits in future years.
4. reduces taxable income in future years.
Answer: true
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Question: True or false: The tax benefit created by a net operating loss is recognized in the income statement in the year the loss occurs.
True false question.
Answer: 3
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Question: Olaf Corp. is in its third year of operations. Olaf had taxable income (loss) as follows: Year 1 $10,000 Year 2 $(50,000) Year 3 $20,000 The NOL carryforward at the end of Year 3 is
1. $20,000
2. $30,000
3. $34,000
4. $24,000
Answer: offset
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Question: NOL carryforwards produce cash savings because they ___ future taxable income.
Answer: 3
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Question: A net operating loss _____ create(s) a deferred tax asset.
1. carryback and carryforward
2. carryback
3. carryforward
Answer: 4 and 5
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Question: Brindle Corp. is in its first year of operations and has a net operating loss for tax purposes of $100,000. Brindle expects to be profitable within the next 2 years. The enacted income tax rate is 40%. Which of the following entries are included to record the NOL carryforward?
1. Credit taxes payable $40,000.
2. Debit tax expense $40,000.
3. Credit deferred tax liability $40,000.
4. Debit deferred tax asset $40,000.
5. Credit income tax benefit $40,000.
Answer: 2
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Question: A net operating loss carryforward creates a tax benefit on the income statement in the year
1. when the net operating loss carryforward expires.
2. the net operating loss occurs.
3. when the deferred tax asset reverses.
4. when the carryforward is used.
Answer: 4
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Question: Manning Insurance is a property and casualty insurance company in its fifth year of operations. The income tax rate is 40%. Manning had taxable income (loss) as follows: Year 1 $10,000 Year 2 $40,000 Year 3 $30,000 Year 4 $20,000 Year 5 ($300,000) The operating loss for financial reporting purposes is $300,000 in year 5. Assuming Manning is allowed to carryback its NOLs for two years, calculate the net loss after taxes for financial reporting income.
1. $250,000
2. $150,000
3. $300,000
4. $180,000
Answer: 2 and 4
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Question: Which of the following are benefits of a net operating loss carryforward? (Select all that apply.)
1. The net operating loss carryforward indicates increased earnings in the future.
2. They make an unprofitable company an attractive target for acquisition.
3. They provide an unprofitable company reason to acquire a profitable company.
4. The potential tax benefit can provide cash savings for the company in the future.
Answer: 1 and 3
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Question: Which of the following are true when there are multiple temporary differences (select all that apply)?
1. The total of the future taxable amounts is multiplied by the future tax rate to determine the balance of deferred tax liabilities.
2. The net of the future taxable and deductible amounts is multiplied by the future tax rate to determine the net deferred tax liabilities or assets.
3. The total of the future deductible amounts is multiplied by the future tax rate to determine the balance of deferred tax assets.
Answer: 4
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Question: Regina Corp. is in its first year of operations and has a net loss of $50,000. Regina expects to be profitable within the next three years. The enacted income tax rate is 21%. Which of the following entries is included in the journal entry to record the NOL carryforward?
1. Debit income tax expense $10,500.
2. Credit income tax benefit $50,000.
3. Credit deferred tax liability $39,500.
4. Debit deferred tax asset $10,500.
Answer: 1
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Question: the income tax benefit of a net operating loss carryforward is recognized for accounting purposes when?
1. In the year the net operating loss occurs.
2. Equally over all years impacted by the carryforward.
3. In the year the carryforward offsets future income.
Answer: true
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Question: True or false: The tax benefit created by a net operating loss is recognized in the income statement in the year the loss occurs.
Answer: 1
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Question: A valuation allowance should be used to offset a net operating loss carryforward if
1. it is more likely than not that the company will not be able to utilize the carryforward.
2. the company believes that future tax laws will not allow it to carryforward the loss indefinitely.
3. the company's management is conservative.
4. it is more likely than not that cash flows from operations will be higher than taxable income.
Answer: 2
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Question: Persimmon Corp. is a property and casualty insurance company in its fourth year of operation. Persimmon had taxable income of $20,000 in year 1, $30,000 in year 2, and $50,000 in year 3. In year 4, Persimmon incurred a $400,000 net operating loss. Persimmon is allowed to carry its NOLs back two years. Assuming the tax rate is 40% and Persimmon's pretax accounting loss was $400,000, the net loss for financial reporting purposes in year 4 is
1. $160,000.
2. $240,000.
3. $400,000.
4. $320,000.
Answer: benefit
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Question: The expected tax savings created by a net operating loss carryforward often is labeled as an income tax ___ on the income statement.
Answer: 4
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Question: When is a valuation allowance account used for a net operating loss resulting in a deferred tax asset?
1. only in the year the net operating loss arises
2. when cash flow from operations is greater than taxable income
3. when taxable income is greater than pretax financial income
4. when it is more likely than not that it will not be realized
Answer: 1
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Question: Regina Corp. is a property and casualty insurance company in its third year of operations and has a net loss of $100,000. Regina had taxable income of $10,000 and $30,000 in its first and second year of operations, respectively. Regina expects to be profitable within the next year. Regina is allowed to carry back the net operating loss to previous years. The enacted income tax rate is 40%. The income tax benefit from the NOL carryforward shown on Regina's income statement in the year of the loss is
1. $24,000.
2. $40,000.
3. $0.
4. $16,000.
Answer: 3
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Question: For tax years beginning before January 1, 2018, a net operating loss carryback can be applied to reduce previously reported taxable income in the _____ prior year(s).
1. 1
2. 10
3. 2
4. 20
Answer: 2
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