ch.12

22. 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

b. A current liability for $14,000 and a long-term asset for $9,000.

10. Assuming no prior period adjustments, would the following affect net income?

Interperiod Intraperiod Income tax Income tax Allocation Allocation b Yes No

8. The accounting recognition of the benefit from a tax loss carryforward in most situations should be reported as

a. A reduction of the loss in the year of the loss with an appropriate valuation allowance

1. 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

a. Accounted for as a timing difference

12. Smith Corporation owns only 25 percent of the voting stock of Jones Corporation, but exercises significant influence over its operating and financial policies. The tax effect of differences between taxable income and pretax accounting income attributable to undistributed earnings of Jones Corporation should be

a. Accounted for as a timing difference

17. A net operating loss carryover that occurs in a company's second year of operations

a. May cause a company to report a tax benefit in the current period income statement.

13. 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

b. A net current and a net noncurrent amount

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

b. Both carrybacks and carryforwards

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

b. Income taxes are an expense of doing business and should be treated the same as other expenses of doing business under accrual accounting.

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

b. Income taxes are an expense of doing business and should be treated the same as other expenses of doing business under accrual accounting.

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

b. Reporting an unrealized gain for a trading security.

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

b. Tax rates expected to be in effect when the items giving rise to the timing differences reverse themselves

3. Which of the following would cause a deferred tax expense?

b. Use of equity method where undistributed earnings of a 30 percent owned investee are related to probable future dividends

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

c. A life insurance premium paid by the corporation on a policy that names the corporation as the beneficiary.

9. Intraperiod tax allocation arises because

c. Certain revenues and expenses appear in the financial statements either before or after they are included in taxable income

14. 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?

c. Comprehensive allocation of deferred taxes under the asset/liability method.

11. A machine with a 10-year useful life is being depreciated on a straight-line basis for financial statement purposes, and over 5 years for income tax purposes under the accelerated recovery cost system. Assuming that the company is profitable and that there are and have been no other timing differences, the related deferred income taxes would be reported in the balance sheet at the end of the first year of the estimated useful life as a

c. Noncurrent liability

2. Income tax allocation procedures are not appropriate when

d. Differences between net income for tax purposes and financial reporting occur that will not reverse.

23. An increase in the deferred income tax asset valuation allowance

d. Increases income tax expense.

6. Which of the following is not affected by tax allocation within a period?

d. Operating revenues

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

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.

4. 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

a. Permanent differences

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

a. The deferred method of interperiod income tax allocation