A company purchases a piece of equipment costing $7,000,000 that it expects will have a

equipment if incurred during construction of a new facility?

A.Interest costs during construction.

B.Expenses associated with classified advertising to recruit new employees.

C.Shipping costs for an assembly required for customizing new equipment.

l life of five years, at which time it will have a salvage value of $10,000.Using the double-declining balance method, Year 3 depreciation expense is closest to:

A.$27,200

B.$16,320

C.$9,792

. Company Y’s fixed assets have a four-year useful life for financial purpose (which is double the useful life for tax purpose) and are depreciated using the straight-line method.

The effective tax rate for the company is closest to:

A.30.0%

B.26.7%

C.24.0%.

a total of $6.7 million in corporate taxes. Bao paid $4.4 million of the tax bill, but still owes $2.3 million. It also received $478,000 in the second quarter as a down payment towards $942,000 in custom-built products to be delivered in the third quarter. Its financial accounts for the second for the second quarter most likely show the $2.3 million and the $478,000 as:

reporting information:

·Deferred tax asset of $1,000.

·Deferred tax liability of $5,000.

Based only on this information and the news that the tax rate will decline to 40%, Bao Corporation’s:

A.deferred tax asset will be reduced by $400 and deferred tax liability will be reduced by $2,000.

B.deferred tax liability will be reduced by $1,000 and income tax expense will be reduced by $800.

C.deferred tax asset will be reduced by $200 and income tax expense will be reduced by $1,000.

million. For financial reporting purposes, the firm will depreciate the equipment over a 7-year life using straight-line depreciation and a zero salvage value; for tax reporting purposes, however, the firm will use 3-year accelerated depreciation. Given a tax rate of 35% and a first-year accelerated depreciation factor of 0.333, by how much will the company’s deferred tax liability increase in the first year of the equipment’s life?

A.$931,700.

B.$1,064,800.

C.$1,730,300.

A company records the following two transactions:

I.€300,000 of rental revenue is received in advance on a two-year lease.It is taxed on a cash basis, but deferred for accounting purposes.

II.€500,000 of installment sales.No payments are required for one year after which collections will be made on an equal basis over 12 months and taxed on a cash basis.The entire sale and related profit will be recognized for financial reporting purposes, in the year of sale.

Which of the above transactions will most likely give rise to a deferred tax liability on the balance sheet?

A.I only.

B.II only.

C.Both I and II.

ese costs were fully deductible immediately for tax purposes, but the company is depreciating them over two years for financial reporting purposes.The company has a long history of profitability.When calculating the company’s debt-to-equity ratio, the most appropriate way for an analyst to incorporate the differential tax treatment is to:

A.include it in equity.

B.include it in liabilities.

C.not include it in either equity or liabilities.

xpected residual value.The company depreciates similar assets on a straight-line basis over 10 years while the tax authorities allow depreciation at the rate of 15% per year.In both cases the company takes a full year’s depreciation in the first year.At the end of the year, the tax base and temporary difference in the value of the asset, respectively, are closest to:

A.$425,000; $25,000.

B.$425,000; $75,000.

C.$500,000; $25,000.

Under U.S.GAAP, which of the following factors is an analyst least likely to consider when determining if a company’s deferred tax liabilities should be treated as a liabilities or equity?

A.The growth rate of the firm.

B.The average discount rate of liabilities.

C.the expectation that temporary difference will reverse.