ch 19 (income taxes)

Accounting for income taxes can result in the reporting of deferred taxes as a. a current asset. b. a non current liability. c. a contra-asset account. d. a current liability.

b. a non current liability

Assuming a 40% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet? A revenue is deferred for financial reporting purposes but not for tax purposes. A revenue is deferred for tax purposes but not for financial reporting purposes. An expense is deferred for financial reporting purposes but not for tax purposes. An expense is deferred for tax purposes but not for financial reporting purposes. a. item II only b. items I and II only c. items II and III only d. items I and IV only

c. items 2 and 3 only

t/f - a possible source of taxable income that may be available to realize a tax benefit for loss carryfowards is future reversals of existing taxable temp differences

true

t/f - companies are permitted to offset any balances in income taxes payable against related income tax refund receivable or prepaid income taxes balances

true

t/f - companies must consider presently enacted changes in the tax rate that become effective in future years when determining the tax rate to apply to existing temp differences

true

t/f - companies should consider both positive and negative evidence to determine whether it needs to record a valuation allowance to reduce a deferred tax asset

true

t/f - deferred tax expense is the increase in the deferred tax liability balance from the beginning to the end of the accounting period

true

t/f - permanent differences do not give rise to future taxable or deductible amounts

true

t/f - taxable temp differences will result in taxable amounts in future years when the related assets are recovered

true

t/f - the tax effect of a loss carryfoward represents future tax savings and results in the recognition of a deferred tax asset

true

t/f - a deferred tax expense represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year

trueq

Which of the following will not result in a temporary difference? a. Product warranty liabilities b. Advance rental receipts c. Installment sales d. Interest received on municipal obligations.

d. interest received on municipal obligations

Tanner, Inc. incurred a financial and taxable loss for 2018. 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 2018 financial statements? a. The reduction of the loss should be reported as a prior period adjustment. b. The refund claimed should be reported as a deferred charge and amortized over five years. c. The refund claimed should be reported as revenue in the current year. d. The refund claimed should be shown as a benefit due to loss carryforward in 2018.

d. the refund claimed should be shown as a benefit due to loss carryfoward in 2018

t/f - a company reduces a deferred tax asset by a valuation allowance if it is probably that is will not realize some portion of the deferred tax asset

false

t/f - a company should add a decrease in a deferred tax liability to income taxes payable in computing income tax expense

false

t/f - companies should classify deferred tax accounts on the balance sheet as current assets or current liabilities

false

t/f - deductible amounts cause taxable income to be greater than pretax fin. income in the future as a result of existing temp differences

false

t/f - examples of taxable temp differences are subscriptions received in advance and advance rental receipts

false

t/f - pretax financial income is the amount used to compute taxes payable

false

t/f - taxable income is a tax accounting term and is also referred to as income before taxes

false

t/f - the FASB believes that the deferred tax method is the most consistent method for account for income taxes

false

t/f - under the loss carry back approach, companies must apply a current year loss to the most recent year first and then to an earlier year

false

t/f - when a change in the tax rate is enacted, the effect is reported as an adjustment to income tax payable in the period of the change

false

a company records an unrealized loss on trading securities. what type of difference and deferred income tax?

temp difference. 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 what type of deferred income tax?

temp difference. deferred tax liability

t/f - a deferred tax asset represents the increase in taxes refundable in future years as a result of deductible temp. differences existing at the end of the current year

true

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

yes - after it is reported in financial income. yes - before it is reported in financial income

machinery was acquired at the beginning of the year. depreciation recorded during the life of the machinery could result in:

yes - future taxable amounts. yes - duffer deductible amounts

taxable income of a corp differs from pretax financial income because of:

yes- permanent differences. yes - temporary differences

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates? Accrual for product warranty liability. Subscriptions received in advance. III. Prepaid insurance expense. a. I and II only. b. II only. c. III only. d. I and III only.

a. 1 and 2 only

Recognizing a valuation allowance for a deferred tax asset requires that a company a. consider all positive and negative information in determining the need for a valuation allowance. b. consider only the positive information in determining the need for a valuation allowance. c. take an aggressive approach in its tax planning. d. pass a recognition threshold, after assuming that it will be audited by taxing authorities.

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

Companies are required to disclose the total of each of the following except a. all deferred tax assets. b. all deferred tax liabilities. c. the total valuation allowance. d. All of these choices must be disclosed.

all correct

At the December 31, 2017 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2018, a future taxable amount will occur and a. pretax financial income will exceed taxable income in 2018. b. Unruh will record a decrease in a deferred tax liability in 2018. c. total income tax expense for 2018 will exceed current tax expense for 2018. d. Unruh will record an increase in a deferred tax asset in 2018.

b. Unrush will record a decrease in deferred tax liability in 2018

Deferred taxes should be presented on the balance sheet a. as either noncurrent or current. b. as a noncurrent amount. c. as a current amount. d. as reductions of the related asset or liability accounts.

b. as a non current amount

Taxable income of a corporation a. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination. b. differs from accounting income because companies use the full accrual method for financial reporting but use the modified cash basis for tax reporting. c. is based on generally accepted accounting principles. d. is reported on the corporation's income statement.

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

The deferred tax expense is the a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability. b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset. c. increase in balance of deferred tax liability from the beginning to the end of the accounting period. d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.

b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset

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? a. Prepaid expenses that are deducted on the tax return in the period paid. b. Product warranty liabilities. c. Depreciable property. d. Fines and expenses resulting from a violation of law.

b. product warranty liabilities

Recognition of tax benefits in the loss year due to a loss carryforward requires a. the establishment of a deferred tax liability. b. the establishment of a deferred tax asset. c. the establishment of an income tax refund receivable. d. only a note to the financial statements.

b. the establishment of a deferred tax asset

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 incomes for Stuart would be a. a balance in the Unearned Rent account at year end. b. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes. c. a fine resulting from violations of OSHA regulations. d. making installment sales during the year.

c. a fine resulting from violations of OSHA regulations

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income? a. Subscriptions received in advance. b. Prepaid royalty received in advance. c. An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes. d. Interest received on a municipal obligation.

c. an installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when a. it is probable and can be reasonably estimated. b. there is at least a 51% probability that the uncertain tax position will be approved by the taxing authorities. c. it is more likely than not that the tax position will be sustained upon audit. d. Any of these choices exist.

c. it is more likely than 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 a. identify the types and amounts of existing temporary differences. b. measure the total deferred tax liability for taxable temporary differences. c. measure the total deferred tax liability for deductible temporary differences. d. determine taxes payable.

c. measure the total deferred tax liability for deductible temp differences

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be a. handled retroactively in accordance with the guidance related to changes in accounting principles. b. considered, but it should only be recorded in the accounts if it reduces a deferred tax liability or increases a deferred tax asset. c. reported as an adjustment to income tax expense in the period of change. d. applied to all temporary or permanent differences that arise prior to the date of the enactment of the tax rate change, but not subsequent to the date of the change.

c. reported as an adjustment to income tax expense in the period of change

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if a. it is probable that a future tax rate change will occur. b. it appears likely that a future tax rate will be greater than the current tax rate. c. the future tax rates have been enacted into law. d. it appears likely that a future tax rate will be less than the current tax rate

c. the future tax rates have been enacted into law

Uncertain tax positions I. Are positions for which the tax authorities may disallow a deduction in whole or in part. II. Include instances in which the tax law is clear and in which the company believes an audit is likely. III.Give rise to tax expense by increasing payables or increasing a deferred a. I, II, and III b. I and III only c. II only d. I only

d. I only

Major reasons for disclosure of deferred income tax information is (are) a. better assessment of quality of earnings. b. better predictions of future cash flows. c. predicting future cash flows for operating loss carryforwards. d. All of these answer choices are correct.

d. all correct

An example of a permanent difference is a. proceeds from life insurance on officers. b. interest expense on money borrowed to invest in municipal bonds. c. insurance expense for a life insurance policy on officers. d. All of these answers are correct as they are all examples of permanent differences.

d. all of these answers are correct as they are all examples of permanent differences

Which of the following differences would result in future taxable amounts? a. Expenses or losses that are tax deductible after they are recognized in financial income. b. Revenues or gains that are taxable before they are recognized in financial income. c. Revenues or gains that are recognized in financial income but are never included in taxable income. d. Expenses or losses that are tax deductible before they are recognized in financial income.

d. expenses or losses that are tax deductible before they are recognized in financial income

Companies are permitted to offset any balances in income taxes payable against a. deferred tax assets balances. b. deferred tax liabilities balances. c. income tax expense. d. related income tax refund receivable or prepaid income taxes balances.

d. related income tax refund receivable or prepaid income taxes balances

Which of the following is not considered a permanent difference? a. Interest received on municipal bonds. b. Fines resulting from violating the law. c. Premiums paid for life insurance on a company's CEO when the company is the beneficiary. d. Stock-based compensation expense.

d. stock based compensation expense

A major distinction between temporary and permanent differences is 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 reverse.

d. temp differences reverse themselves in subsequent accounting periods, whereas permeant differences do not reverse