Question 1

A deferred tax asset represents a

Accepted Answer

A)  Future tax expense
B)  Future tax liability.
C)  Future tax benefit
D)  Future taxable amountE) A) and B)
F) None of the above

Question 2

A net operating loss:

Accepted Answer

A)  Must always be carried back 2 years
B)  Occurs when a company reports a net loss in their income statement
C)  May be carried back 2 years or carried forward up to 20 years
D)  Must always be carried forward 20 yearsE) A) and C)
F) A) and B)

Question 3

A company's only temporary difference results from using double declining balance depreciation for tax purposes and straight-line depreciation for financial reporting.The company purchases new plant assets each year.If currently enacted tax law will result in a higher tax rate for all future tax years,which accounting approach for deferred taxes will result in the lowest net income for this current year?

Accepted Answer

A)  Nonallocation of deferred taxes.
B)  Partial allocation of deferred taxes under the asset/liability method.
C)  Comprehensive allocation of deferred taxes under the asset/liability method.
D)  Comprehensive allocation of deferred taxes under the deferred method.E) A) and D)
F) B) and C)

Question 4

Under the comprehensive deferred interperiod method of tax allocation,deferred taxes are determined on the basis of

Accepted Answer

A)  Tax rates in effect when the timing differences originate without adjustment for subsequent changes in tax rates
B)  Tax rates expected to be in effect when the items giving rise to the timing differences reverse themselves
C)  Net valuations of assets or liabilities
D)  Averages determined on an industry-by-industry basisE) A) and B)
F) C) and D)

Question 5

Which of the following causes a permanent difference between taxable income and financial accounting income?

Accepted Answer

A)  The useful life of an asset is 10 years.The asset is depreciated over 7 years for tax purposes.
B)  Rent received in advance is taxable upon receipt.
C)  A life insurance premium paid by the corporation on a policy that names the corporation as the beneficiary.
D)  A penalty paid to a bank when a CD is cashed before its maturity date.E) None of the above
F) B) and D)

Question 6

Differences between taxable income and pretax accounting income arising from transactions that,under applicable tax laws and regulations,will not be offset by corresponding differences or "turn around" in future periods is a definition of

Accepted Answer

A)  Permanent differences
B)  Timing differences
C)  Intraperiod tax allocation
D)  Interperiod tax allocationE) A) and C)
F) A) and B)

Question 7

With respect to the difference between taxable income and pretax accounting income,the tax effect of the undistributed earnings of a subsidiary included in consolidated income should normally be

Accepted Answer

A)  Accounted for as a timing difference
B)  Accounted for as a permanent difference
C)  Ignored because it must be based on estimates and assumptions
D)  Ignored because it cannot be presumed that all undistributed earnings of a subsidiary will be transferred to the parent companyE) A) and C)
F) None of the above A

Question 8

Which of the following will result in a deferred tax liability?

Accepted Answer

A)  A net operating loss carryover.
B)  Reporting an unrealized gain for a trading security.
C)  Reporting an unrealized gain for an available-for-sale security.
D)  Reporting an expected loss on from a lawsuit in the income statement,when it cannot be reported on the tax return until it is actually incurred.E) None of the above
F) B) and D)

Question 9

Which of the following is not an argument that an advocate of nonallocation of deferred taxes might use to support his/her position?

Accepted Answer

A)  Income taxes result only from taxable income.
B)  Income taxes are an expense of doing business and should be treated the same as other expenses of doing business under accrual accounting.
C)  Income taxes are not levied on individual items of income or expense.
D)  The current provision for income taxes is a better predictor of future cash flows than is income tax expense that includes deferred taxes.E) A) and D)
F) None of the above

Question 10

Taxable income of a corporation differs from pretax financial income because of Permanent Differences Temporary Differences

Accepted Answer

A)  No Yes
B)  Yes Yes
C)  No No
D)  Yes NoE) A) and B)
F) None of the above

Question 11

Intraperiod tax allocation arises because

Accepted Answer

A)  Items included in the determination of taxable income may be presented in different sections of the financial statements
B)  Income taxes must be allocated between current and future periods
C)  Certain revenues and expenses appear in the financial statements either before or after they are included in taxable income
D)  Certain revenues and expenses appear in the financial statements but are excluded from taxable incomeE) All of the above
F) None of the above

Question 12

A company has four "deferred income tax" accounts arising from timing differences involving 1) current assets,2) noncurrent assets,3) current liabilities,and 4) noncurrent liabilities.The presentation of these four "deferred income tax" accounts in the statement of financial position should be shown as

Accepted Answer

A)  A single net amount
B)  A net current and a net noncurrent amount
C)  Four accounts with no netting permitted
D)  Valuation adjustments of the related assets and liabilities that gave rise to the deferred taxE) A) and C)
F) All of the above B

Question 13

The tax effect of a difference between taxable income and pretax accounting income attributable to losses of a subsidiary is normally recognized for

Accepted Answer

A)  Neither carrybacks nor carryforwards
B)  Both carrybacks and carryforwards
C)  Carrybacks but not carryforwards
D)  Carryforwards but not carrybacksE) A) and D)
F) C) and D) B

Question 14

Which of the following approaches to interperiod tax allocation best represents an example of the matching principle?

Accepted Answer

A)  The deferred method of interperiod income tax allocation
B)  Discounting deferred income taxes
C)  Nonallocation of income taxes
D)  The asset/liability method of income tax allocation.E) B) and D)
F) None of the above

Question 15

A major distinction between temporary and permanent differences is

Accepted Answer

A)  Permanent differences are not representative of acceptable accounting practice
B)  Temporary differences occur frequently,whereas permanent differences occur only once
C)  Once an item is determined to be a temporary difference,it maintains that status;however,a permanent difference can change in status with the passage of time.
D)  Temporary differences reverse themselves in subsequent accounting periods,whereas permanent differences do not reverseE) B) and C)
F) C) and D)

Question 16

An increase in the deferred income tax asset valuation allowance

Accepted Answer

A)  Occurs when there is an operating loss carryforward.
B)  Has no effect on income tax expense.
C)  Occurs when there is an expected increase in future taxable income.
D)  Increases income tax expense.E) A) and D)
F) All of the above

Question 17

A company that has both short-term deferred tax assets of $22,000,long-term deferred tax liabilities of $36,000,short-term deferred tax liabilities of $51,000 and short-term deferred tax assets of $60,000 should report

Accepted Answer

A)  A current asset for $22,000,a current liability for $36,000,a long-term asset for $60,000,and a long-term liability for $51,000.
B)  A current liability for $14,000 and a long-term asset for $9,000.
C)  A current asset for $5,000.
D)  A current liability for $14,000,a long-term asset for $60,000,and a long-term liability for $51,000.E) B) and D)
F) B) and C)

Question 18

Which of the following will result in a deferred tax asset?

Accepted Answer

A)  Using the installment sales method for tax purposes,while using point of sale for financial reporting.
B)  Reporting an unrealized gain for a trading security.
C)  Using accelerated depreciation for tax purposes and straight-line depreciation for financial reporting.
D)  Reporting an expected loss on from a lawsuit in the income statement,when it cannot be reported on the tax return until it is actually incurred.E) A) and B)
F) A) and D)

Question 19

Which of the following would cause a deferred tax expense?

Accepted Answer

A)  Write-down of goodwill due to impairment
B)  Use of equity method where undistributed earnings of a 30 percent owned investee are related to probable future dividends
C)  Premiums paid on insurance carried by company beneficiary) on its officers or employees
D)  Income is taxed at capital gains ratesE) A) and C)
F) A) and B)

Question 20

Which of the following is an argument that an advocate of interperiod income tax allocation might use to support his/her position?

Accepted Answer

A)  Income taxes result from taxable income.
B)  Income taxes are an expense of doing business and should be treated the same as other expenses of doing business under accrual accounting.
C)  Nonallocation of income taxes hides an economic difference between a company that employs tax strategies that reduce current tax payments than one that does not.
D)  Income taxes are not incurred in anticipation of future benefits,nor are they expirations of cost to provide facilities to generate revenues.E) None of the above
F) A) and C)

Exam 12: Accounting for Income Taxes

A deferred tax asset represents a

Correct Answer
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A net operating loss:

Correct Answer
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Correct Answer
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Under the comprehensive deferred interperiod method of tax allocation,deferred taxes are determined on the basis of

Correct Answer
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Which of the following causes a permanent difference between taxable income and financial accounting income?

Correct Answer
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Differences between taxable income and pretax accounting income arising from transactions that,under applicable tax laws and regulations,will not be offset by corresponding differences or "turn around" in future periods is a definition of

Correct Answer
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With respect to the difference between taxable income and pretax accounting income,the tax effect of the undistributed earnings of a subsidiary included in consolidated income should normally be

Correct Answer
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A

Which of the following will result in a deferred tax liability?

Correct Answer
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Which of the following is not an argument that an advocate of nonallocation of deferred taxes might use to support his/her position?

Correct Answer
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Taxable income of a corporation differs from pretax financial income because of Permanent Differences Temporary Differences

Correct Answer
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Intraperiod tax allocation arises because

Correct Answer
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B

The tax effect of a difference between taxable income and pretax accounting income attributable to losses of a subsidiary is normally recognized for

Correct Answer
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B

Which of the following approaches to interperiod tax allocation best represents an example of the matching principle?

Correct Answer
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A major distinction between temporary and permanent differences is

Correct Answer
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An increase in the deferred income tax asset valuation allowance

Correct Answer
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A company that has both short-term deferred tax assets of $22,000,long-term deferred tax liabilities of $36,000,short-term deferred tax liabilities of $51,000 and short-term deferred tax assets of $60,000 should report

Correct Answer
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Which of the following will result in a deferred tax asset?

Correct Answer
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Which of the following would cause a deferred tax expense?

Correct Answer
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Which of the following is an argument that an advocate of interperiod income tax allocation might use to support his/her position?

Correct Answer
verified

Exam 12: Accounting for Income Taxes

A deferred tax asset represents a

Correct AnswerverifiedShow Answer

A net operating loss:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Under the comprehensive deferred interperiod method of tax allocation,deferred taxes are determined on the basis of

Correct AnswerverifiedShow Answer

Which of the following causes a permanent difference between taxable income and financial accounting income?

Correct AnswerverifiedShow Answer

Differences between taxable income and pretax accounting income arising from transactions that,under applicable tax laws and regulations,will not be offset by corresponding differences or "turn around" in future periods is a definition of

Correct AnswerverifiedShow Answer

With respect to the difference between taxable income and pretax accounting income,the tax effect of the undistributed earnings of a subsidiary included in consolidated income should normally be

Correct AnswerverifiedA

Which of the following will result in a deferred tax liability?

Correct AnswerverifiedShow Answer

Which of the following is not an argument that an advocate of nonallocation of deferred taxes might use to support his/her position?

Correct AnswerverifiedShow Answer

Taxable income of a corporation differs from pretax financial income because of Permanent Differences Temporary Differences

Correct AnswerverifiedShow Answer

Intraperiod tax allocation arises because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

The tax effect of a difference between taxable income and pretax accounting income attributable to losses of a subsidiary is normally recognized for

Correct AnswerverifiedB

Which of the following approaches to interperiod tax allocation best represents an example of the matching principle?

Correct AnswerverifiedShow Answer

A major distinction between temporary and permanent differences is

Correct AnswerverifiedShow Answer

An increase in the deferred income tax asset valuation allowance

Correct AnswerverifiedShow Answer

A company that has both short-term deferred tax assets of $22,000,long-term deferred tax liabilities of $36,000,short-term deferred tax liabilities of $51,000 and short-term deferred tax assets of $60,000 should report

Correct AnswerverifiedShow Answer

Which of the following will result in a deferred tax asset?

Correct AnswerverifiedShow Answer

Which of the following would cause a deferred tax expense?

Correct AnswerverifiedShow Answer

Which of the following is an argument that an advocate of interperiod income tax allocation might use to support his/her position?

Correct AnswerverifiedShow Answer

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A

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B

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B

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