6) Deferred tax would normally arise from which of the following situations?
A) When a company pays income tax quarterly versus yearly
B) When a company pays off all of its debts at the end of the year
C) When a company makes a different choice for its tax return versus its book net income
D) When a company withholds income tax from its employees' payroll
7) Onyx Company's income statement shows net income before income tax of $38,000. The company's tax return shows taxable income of $34,000. Company's tax rate is 40%. Which of the following entries would be used to record tax expense and tax payable?
A) Debit Income tax expense $15,200 and credit Cash $15,200.
B) Debit Deferred tax liability $13,600 and credit Income tax payable $13,600.
C) Debit Income tax expense $15,200, credit Deferred tax liability $1,600 and credit Income tax payable $13,600.
D) Debit Deferred tax liability $1,600, debit Income tax expense $13,600 and credit Income tax payable $15,200.
Learning Objective 9
1) Which one of the following describes financial leverage?
A) To pay off all long-term debt in order to reduce interest expense
B) To finance with equity capital
C) To offer discounts to customers for early payment of invoices
D) To earn more income on borrowed money than the related interest expense
2) Origami Company is considering a new project and needs to raise $800,000 of capital. Their after-tax net income would be $75,000 if they do not implement the new project. If the new project is implemented, it will add an additional $50,000 of profits before tax and interest. Origami's income tax rate is 40%. If they use debt financing, the interest will be at 5%. Origami has 25,000 shares of common stock outstanding and no preferred stock.
If Origami decides to implement the project using debt financing, what will be the earnings per share amount? (Please round to the nearest cent.)
A) $3.24
B) $4.14
C) $3.40
D) $4.20
3) Origami Company is considering a new project and needs to raise $800,000 of capital. Their after-tax net income would be $75,000 if they do not implement the new project. If the new project is implemented, it will add an additional $50,000 of profits before tax and interest. Origami's income tax rate is 40%. If they use debt financing, the interest will be at 5%. Origami has 25,000 shares of common stock outstanding, and no preferred stock. They would have to issue an additional 10,000 shares of common stock to finance the project with equity capital.
If Origami decides to implement the project using equity financing, what will be the earnings per share amount? (Please round to the nearest cent.)
A) $3.24
B) $4.14
C) $3.40
D) $3.00
4) Onyx Company's income statement shows net income before income tax of $38,000. The company's tax return shows taxable income of $34,000. Company's tax rate is 40%. What journal entry is needed to record income tax expense and tax payable?