INT Exam #2

S30. 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. (DTA-deductiable

31. 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.

**(DTL) More now, less later c. An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes.

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 Deferred Tax a. Temporary Liability b. Temporary Asset c. Permanent Liability d. Permanent Asset

. Temporary Asset

39. 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.

hich of the following is not one of the lease classification tests? Purchase option Collectibility Lease term Transfer of ownership

Collectibility

**Hint** IF Difference greater for tax purposes

DTA

***Hint IF Difference greater for tax purposes

DTL

Lessee-Guaranteed Residual Value (Measurement of Liability)

Expected Value > Guaranteed Value: Ignore Expected Value < Guaranteed Value: Include (the difference between the present value of the difference between the expected & guaranteed residual value in computation of lease liability)

Lessee: Unguaranteed Residual Value (Classification Test)

Ignore

Lessee: Unguaranteed Residual Value (Measurement of Liabilities)

Ignore

Lessor- Unguaranteed Residual Value (Classification)

Ignore

Lessor- Guaranteed Residual Value (Classification)

Include

Lessor- Guaranteed Residual Value (Measurement of Liability)

Include

Lessor- Unguaranteed Residual Value (Measurement of Liability)

Include

Lessee-Guaranteed Residual Value (Classification test)

Include Full Amount in PV test

Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease? Depreciation Expense only Lease Revenue and Amortization Expense Lease Revenue only Interest Revenue only

Lease Revenue and Amortization Expense

A single lease expense is recognized on the income statement for both a finance lease and an operating lease. an operating lease. neither a finance lease or an operating lease. a finance lease.

Operating Lease

S27. 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.

Recovered*** b. Unruh will record a decrease in a deferred tax liability in 2018.

Unrealized Gain

Temporary Liability

P44. A lessor with a sales-type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts? a. The minimum lease payments plus the unguaranteed residual value. b. The present value of the minimum lease payments. c. The cost of the asset to the lessor, less the present value of any unguaranteed residual value. d. The present value of the minimum lease payments plus the present value of the unguaranteed residual value.

The sales price less the present value of the residual value.

P26. A temporary difference arises when a revenue item is reported for tax purposes in a period After it is reported Before it is reported in financial income in financial income a. Yes Yes b. Yes No c. No Yes d. No No

a. Yes Yes

When lessors account for residual values related to leased assets, they a.include the residual value in the receivable measurement because it is assumed the residual value will be realized. b.include the unguaranteed residual value in sales revenue. c.recognize more gross profit on a sales-type lease with a guaranteed residual value than on a sales-type lease with an unguaranteed residual value. d.reduce the residual value by the executory costs include the residual value in the receivable measurement because it is assumed the residual value will be realized.

a.include the residual value in the receivable measurement because it is assumed the residual value will be realized.

The lease receivable amount includes the present value of a.rental payments plus the present value of guaranteed and unguaranteed residual values. b.rental payments only. c.rental payments plus the present value of the unguaranteed residual value only. d.rental payments plus the present value of the guaranteed residual value only

a.rental payments plus the present value of guaranteed and unguaranteed residual values.

In a finance lease, the lessee records

amortization expense and interest expense

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

b. II only.

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. full accrual

22 Taxable income of a corporation differs from pretax financial income because of Permanent Temporary Differences Differences a. No No b. No Yes c. Yes Yes d. Yes No

c. Yes Yes yes pap.

24. While only certain leases are currently accounted for as a sale or purchase, there is theoretical justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that a. all leases are generally for the economic life of the property and the residual value of the property at the end of the lease is minimal. b. at the end of the lease the property usually can be purchased by the lessee. c. a lease reflects the purchase or sale of a quantifiable right to the use of property. d. during the life of the lease the lessee can effectively treat the property as if it were owned.

c. a lease reflects the purchase or sale of a quantifiable right to the use of property.

23. 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.

c. increase in balance of deferred tax liability from the beginning to the end of the accounting period. increase from

1. 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 temporary differences (Deductible DTA)

S40. 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.

41. 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.

. In computing the present value of the minimum lease payments, the lessee should a. use its incremental borrowing rate in all cases. b. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee. c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee. d. use the implicit rate in all cases.

c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.

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.

d.

5. 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 of these answer choices are correct.

32. 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.

35. 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.

48. 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.

From the lessee's perspective, in the earlier years of a lease, From the lessee's perspective, in the earlier years of a lease, operating leases will cause debt to increase, compared to finance leases. finance leases will cause debt to increase, compared to operating leases. finance leases will enable the lessee to report higher income, compared to operating leases. operating leases will cause income to increase, compared to finance leases.

finance leases will cause debt to increase, compared to operating leases.

An example of a permanent difference is

proceeds from life insurance on officers, interest expense on money borrowed to invest in municipal bonds, insurance expense for a life insurance policy on officers