Chapter 19 True/False Questions

A company reduces a deferred tax asset by a valuation allowance if it is probable that it will not realize some portion of the deferred tax asset. T/F?

False

A company should add a decrease in a deferred tax liability to income taxes payable in computing income tax expense. T/F?

False

Companies should classify the balances in the deferred tax accounts on the balance sheet as noncurrent assets and noncurrent liabilities. T/F?

False

Deductible amounts cause taxable income to be greater than pretax financial income in the future as a result of existing temporary differences. T/F?

False

Examples of taxable temporary differences are subscriptions received in advance and advance rental receipts. T/F?

False

Pretax financial income is the amount used to compute income taxes payable. T/F?

False

Taxable income is a tax accounting term and is also referred to as income before taxes. T/F?

False

The FASB believes that the deferred tax method is the most consistent method for accounting for income taxes. T/F?

False

Under the loss carryback approach, companies must apply a current year loss to the most recent year first and then to an earlier year. T/F?

False

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. T/F?

False

A deferred tax asset represents the increase in taxes refundable in future years as a result of deductible temporary differences existing at the end of the current year. T/F?

True

A deferred tax liability represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year. T/F?

True

A possible source of taxable income that may be available to realize a tax benefit for loss carryforwards is future reversals of existing taxable temporary differences. T/F?

True

An individual deferred tax asset or liability is classified as current or noncurrent based on the classification of the related asset/liability for financial reporting purposes. T/F?

True

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 temporary differences. T/F?

True

Companies should consider both positive and negative evidence to determine whether it needs to record a valuation allowance to reduce a deferred tax asset. T/F?

True

Deferred tax expense is the increase in the deferred tax liability balance from the beginning to the end of the accounting period. T/F?

True

Permanent differences do not give rise to future taxable or deductible amounts. T/F?

True

Taxable temporary differences will result in taxable amounts in future years when the related assets are recovered. T/F?

True

The tax effect of a loss carryforward represents future tax savings and results in the recognition of a deferred tax asset. T/F?

True