ACCT 3021 Chapter 19 - Income Taxes

Stuart Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable income for Stuart would be

A fine resulting from violations of OSHA regulations

Accounting for income taxes can result in the reporting of deferred taxes as

A non current liability

A temporary difference arises when a revenue item is reported for tax purposes in a period

After it is reported in financial income: YES Before it is reported in financial income: YES

An example of a permanent difference is

All of these answers are correct - Proceeds from life insurance on officers, interest expense on money borrows to invest in municipal bonds, insurance expense for a life insurance policy on officers

Major reasons for disclosure of deferred income tax information is (are)

All of these answers are correct - better assessment of quality of earnings, better predictions of future cash flows, predicting future cash flows for operating loss carry forwards

Companies are required to disclose the total of each of the following EXCEPT

All of these choices must be disclosed - all deferred tax assets, all deferred tax liabilities, the total valuation allowance

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?

An installment sale accounted for on the accrual bases for financial reporting purposes and on the installment (cash) basis for tax purposes

Deferred taxes should be presented on the balance sheet

As a noncurrent amount

Recognizing a valuation allowance for a deferred tax asset requires that a company

Consider all positive and negative information in determining the need for a valuation allowance

Taxable income of a corporation

Differs from accounting income because companies use the full accrual method for financial reporting but use the modified cash basis for tax reporting.

Which of the following differences would result in future taxable amounts?

Expenses or losses that are tax deductible before they are recognized in financial income

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in

Future Taxable Amounts: YES Future Deductible Amounts: YES

The deferred tax expense is the

Increase in balance of deferred tax liability from the beginning to the end of the accounting period

Which of the following will NOT result in a temporary difference?

Interest received on municipal obligations

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when

It is more likely then not that the tax position will be sustained upon audit

All of the following are procedures for the computation of deferred income taxes EXCEPT to

Measure the total deferred tax liability for deductible temporary differences

Taxable income of a corporation differs from pretax financial income because of

Permanent differences: YES Temporary differences: YES

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?

Product warranty liabilities

What a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be

Reported as an adjustment to income tax expense in the period of change

Which of the following is NOT considered a permanent difference?

Stock-based compensation expense

A major distinction between temporary and permanent differences is

Temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse

Recognition of tax benefits in the loss year due to a loss carry forward requires

The establishment of a deferred tax asset

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if

The future tax rates have been enacted into law

Tanner, Inc. incurred a financial and taxable loss for 2013. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2013 financial statements?

The refund claimed should be shown as a reduction of income tax expense in 2021

A company records an unrealized loss on trading securities. This would result in what type of difference and in what type of deferred income tax?

Type of Difference: Temporary Deferred Tax: Asset

A company uses the equity method to account for an investment for financial reporting purposes. This would result in what type of difference and in what type of deferred income tax?

Type of Difference: Temporary Deferred Tax: Liability

At the December 31, 2020 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2021, a future taxable amount will occur and

Unruh will record a decrease in a deferred tax liability in 2021

Companies are permitted to offset any balances in the income taxes payable against

related income tax refund receivable or prepaid income taxes balances