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# Income Tax Expense, Investment Revenue, and Tax Liabilities

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1. For its first year of operations Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows:

Pretax accounting income 300,000
Permanent difference (15,000)
285,000
Temporary difference - depreciation (20,000)
Taxable income \$265,000

Tringali's tax rate is 40%.
What should Tringali report as its income tax expense for its first year of operations?
A. \$120,000.
B. \$114,000.
C. \$106,000
D. \$8,000.

2. When the equity method of accounting for investments is used by the investor, the amortization of additional depreciation due to differences between book values and fair values of investee assets on the date of acquisition:
A. Reduces the investment account and increases investment revenue.
B. Increases the investment account and increases investment revenue.
C. Reduces the investment account and reduces investment revenue.
D. Increases the investment account and reduces investment revenue.

3. Which of the following usually results in increases in deferred tax liabilities?
A. Accrual of estimated operating expenses
C. Prepaid operating expenses
D. All of the above are correct. this one? not sure of a.

#### Solution Preview

1. For its first year of operations Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows:
Pretax accounting income 300,000
Permanent difference (15,000)
285,000
Temporary difference - depreciation (20,000)
Taxable income \$265,000
Tringali's tax rate is 40%.
What should Tringali report as its income tax expense for its first year of operations?
A. \$120,000.
B. \$114,000.
C. \$106,000. is it as simple as this?
D. \$8,000.

The tax expense is simply the product of taxable income and tax rate, i.e., 265,000 * 40% = \$106,000

2. When ...

#### Solution Summary

This solution answers to questions regarding income tax expense, investment revenue, and tax liabilities.

\$2.19