Reference no: EM132750974

Questions -

Q1. The following information was extracted from the financial records of Farmer Limited:

Equipment purchased on 1 July 20x1 for $100 000 (accounting depreciation 10% straight line tax depreciation 20% straight line).

If the company tax rate is 30%, the deferred tax item that will be recorded by Farmer Limited at 30 June 20x2 is:

a. credit Deferred tax asset $3 000

b. credit Deferred tax liability $3 000

c. debit Deferred tax asset $10 000

d. debit Deferred tax liability $3 000

e. credit Deferred tax liability $10 000

Q2. The tax effect method of accounting for a company's income tax is based on an assumption that:

a. a tax balance sheet is prepared according to accounting standards.

b. income tax expense is not equal to current tax liability.

c. income tax expense is equal to current tax liability.

d. income tax expense is equal to income tax payable.

e. an accounting balance sheet and a tax balance sheet are the same.

Q3. On 1 Jan 20x2, X Ltd acquired all of the assets and liabilities of Y Ltd. As part of the consideration X Ltd provided Y Ltd with 100,000 shares in X Ltd when the value of X Ltd shares was $2.00 which was a 3 year high. Due to concerns that the share price would not be maintained at $2.00 X Ltd agreed to supply cash to the value of any decrease in the share price below $2.00 for the 100,000 shares issued, this guarantee lasting until 30 June 20x2. X Ltd believed there was a 20% chance the shares would fall to $1.80. At 30 June 20x2 the share price of X Ltd fell to $1.80. The journal entry required at 30 June 20x2 is:

Equipment costing $10 000 was sold by one entity within a group to another at a profit of $4 000. Accumulated depreciation at date of sale was $3000. The consolidation entry will contain the following adjustment to the amount of the equipment:

a. Reduction of $3000

b. Increase of $1000

c. Reduction of $7000

d. Increase of $4000

e. Reduction of $4000