tatement 1: A net operating loss is the excess of allowable deductions over gross income from business for a taxable year. Statement 2: A net operating loss which had not previously been deducted from gross income shall be carried over as a deduction only in the next year immediately following the year of such loss. C. Both statements are correct. A. Only statement 1 is correct. B. Only statement 2 is correct. D. Both statements are incorrect.

tatement 1: A net operating loss is the excess of allowable deductions over gross income from business for a taxable year. Statement 2: A net operating loss which had not previously been deducted from gross income shall be carried over as a deduction only in the next year immediately following the year of such loss. C. Both statements are correct. A. Only statement 1 is correct. B. Only statement 2 is correct. D. Both statements are incorrect.

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter7: Losses—deductions And Limitations

Section: Chapter Questions

Problem 14DQ

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The excess of allowable deductions over gross income of the business in a taxable year is known as: net operating loss. ordinary loss. net deductible loss. NOLCO.
A net operating loss occurs when tax-deductible expenses exceed taxable revenues. Tax laws permit the net operating loss to be used to reduce taxable income in other, profitable years by either a carryback of the loss to prior years or a carryforward of the loss to later years. How are loss carrybacks and loss carryforwards recognized for financial reporting purposes?
A net operating loss occurs when tax-deductible expenses exceed taxable revenues. Tax laws permit the net operating loss to be used to reduce taxable income in future profitable years. How are loss carryforwards recognized for financial reporting purposes?
Statement 1: Permanent differences result in deferred tax assets and deferred tax liabilities. Statement 2: Deferred tax assets should be reported as current if these will reverse in the next twelve months. Statement 3: If the carrying amount of an asset is higher than the tax base, the difference will result in deferred tax liability. Statement 4: Operating loss carryforward occurs when an entity has a negative taxable income. Statement 5: Rent collected in advance shall be taxable when earned. Which of the statement/s are false?
If during the current year, taxable profit is greater than accounting profit and the difference is a temporary difference, a deferred tax liability is recognized at the end of the current year. a deferred tax liability will be recognized in future years. deferred tax asset will be recognized in future years. a deferred tax asset is recognized at the end of the current year.
In Step 1 the income tax expense of $8,750,000 is correct. The deferred tax liability and income tax payable are incorrect. In Step 2 the net income is correct.
Which of the following causes a temporary difference between taxable and pretax accounting income? A. Investment expenses incurred to generate tax-exempt income. B. MACRS used for depreciating equipment. C. The dividends received deduction. D. Life insurance proceeds received due to the death of an executive.
1. A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset. 2. A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability. 3. A permanent difference. (a) ______ For some assets, straight-line depreciation is used for tax purposes while double-declining balance method is used for financial reporting purposes.(b) ______ Warranty expenses are accrued when the sale is made, but cannot be deducted until the work is actually performed.(c) ______ The company uses the percentage of completion method to record revenue on long-term contracts for financial reporting purposes, but the completed contract method is used for tax purposes.(d) ______ Accelerated depreciation is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes, for some equipment.(e) ______ A landlord collects some…
For each item listed below, indicate whether it involves a: a. permanent difference. b. temporary difference that will result in future deductible amounts (giving rise to deferred tax assets). c. temporary difference that will result in future taxable amounts (giving rise to deferred tax liabilities). 1. Rent is collected in advance from a tenant. Rent is taxable when received. 2. Warranty costs are accrued at the time of sale for accounting purposes, but are not deductible until paid for income tax purposes. 3. Interest revenue is recorded on municipal bonds. 4. Installment sales are recognized at the point of sale for accounting purposes, but when the cash is received for income tax purposes. 5. A loss contingency is expensed for accounting purposes. The…
(Terminology, Relationships, Computations, Entries)InstructionsComplete the following statements by filling in the blanks.(a) In a period in which a taxable temporary difference reverses, the reversal will cause taxable income to be _______ (less than, greater than) pretax financial income.(b) If a $76,000 balance in Deferred Tax Asset was computed by use of a 40% rate, the underlying cumulative temporary difference amounts to $_______.(c) Deferred taxes ________ (are, are not) recorded to account for permanent differences.(d) If a taxable temporary difference originates in 2017, it will cause taxable income for 2017 to be ________ (less than, greater than) pretax financial income for 2017.(e) If total tax expense is $50,000 and deferred tax expense is $65,000, then the current portion of the expense computation is referred to as current tax _______ (expense, benefit) of $_______.(f) If a corporation’s tax return shows taxable income of $100,000 for Year 2 and a tax rate of 40%, how…
The asset-liability approach for recording deferred income taxes is an integral part of generally accepted accounting principles. Instructions a. Indicate whether each of the following independent situations should be treated as a temporary difference or as a permanent difference, and explain why. 1. Estimated warranty costs (covering a 3-year warranty) are expensed for financial reporting purposes at the time of sale but deducted for income tax purposes when paid. 2. Depreciation for book and income tax purposes differs because of different bases of carrying the related property, which was acquired in a trade-in. The different bases are a result of different rules used for book and tax purposes to compute the basis of property acquired in a trade-in. 3. A company properly uses the equity method to account for its 30% investment in another company. The investee pays dividends that are about 10% of its annual earnings. 4. A company reports a gain on an involuntary…
a.) For the current year temporary differences existed between the financial statement carrying amounts and the tax basis of the following: Carrying Amount Tax Basis Future Taxable or(Deductible)Amount Buildings andequipment $ 50,000,000 $ 36,000,000 $ 14,000,000 Prepaid insurance 3,000,000 0 3,000,000 Liability-losscontingency 12,000,000 0 (12,000,000 ) (b.) No temporary differences existed at the beginning of the year. (c.) Pretax accounting income was $200,000,000 and taxable income was $110,000,000 for the year and the tax rate is 40%. Permanent differences are the cause of any difference between pretax accounting income and taxable income that are not due to temporary differences. Required:Prepare the journal entry to record the tax provision for the current year.