Ch 15 & 16 multiple choice

which of the following differences between financial and tax accounting ordinarily creates a deferred tax liability? A. prepaid utilities B. interest income on municipal bonds C. proceeds from life insurance received due to death of an executive D. none of the above

A

Which of the following differences between financial and tax accounting ordinarily creates a deferred tax asset? A. installment sales for which taxable income recognized when cash is collected B. unrealized loss from recording inventory impairments C. prepaid expenses D. none of the above

B

which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset? A. unrealized gain from recording investments at fair value B. depreciation early in the life of an asset C. subscriptions collected in advance D. none of the above

C

Which of the following causes a temporary difference between taxable and pretax accounting income? A. investment expenses incurred to generate tax-exempt income B. the dividends received deduction C. life insurance proceeds received due to the death of an executive D. MACRS used for depreciating equipment

D

Lease Classification #1

The agreement specifies that ownership of the asset transfers to the lessee

Distinguishing between operating and finance leases is due in large part to the accounting concept of: A. substance over form B. conservatism C. historical cost D. materiality

a

When the total expenses over the life of an operating lease are compared to the total expenses over the life of a capital lease, one will find that: A. the expenses of the finance lease and operating lease are equal B. no meaningful comparison can be made C. the expenses of an operating lease are greater than the expenses of a finance lease D. the expenses of a finance lease are greater than the expenses of the operating lease

a

from the perspective of the lessee, leases may be classified as either: A. finance or operating B. sales-type or operating C. finance or sales-type without selling profits D. sales-type without selling profit or sales-type with selling profit

a

GAAP regarding accounting for income taxes requires which of the following procedures? A. computation of deferred income tax based on temporary and permanent differences B. computation of deferred income tax based on permanent differences C. computation of deferred tax assets and liabilities based on temporary differences D. computation of income tax expense based on taxable income

c

GAAP requires that some lease agreements be accounted for as purchases. The theoretical justification for this treatment is that a lease of this type: A. reflects the relationship of cause and effect B. complies with the concept of form over substance C. conveys most of the benefits of property ownership D. satisfies the concept of historical cost

c

from the perspective of the lessor, two possible lease classifications are: A. operating or financing B. sales-type or indirect financing C. operating or sales-type D. financing or sales-type

c

Subscriptions collected in advance

deferred tax asset

estimated expenses and losses (tax-deductible when paid)

deferred tax asset

other revenue collected in advance

deferred tax asset

rent collected in advance

deferred tax asset

unrealized loss from recording investments at fair value or inventory at LCM (tax-deductible when asset is sold)

deferred tax asset

accelerated depreciation on the tax return in excess of straight-line depreciation in the income statement

deferred tax liability

installment sales of property (installment method for taxes)

deferred tax liability

prepaid expenses (tax-deductible when paid)

deferred tax liability

unrealized gain from recording investments at fair value (taxable when asset is sold)

deferred tax liability

why does GAAP require income tax expense to be reported using the accrual method?

should report each period at amount caused by the period's activities, regardless of when the tax laws require that the tax be paid

Lease Classification #2

the agreement contains a purchase option that the lessee is reasonably certain to exercise

Lease Classification #3

the lease term is for the "major part" of the remaining economic life of the asset

Lease Classification #4

the present value of the total of the lease payments equals or exceeds "substantially all" of the fair value of the underlying asset

Lease Classification #5

the underlying asset is of such a specialized nature that it's expected to have no alternative use to the lessor at the end of the lease term