ACCT 3313 - CH 19+20 Ungraded

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?

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

Which of the following differences would result in future taxable amounts?

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

Which of the following is true of pension termination?

FASB requires recognition in earnings of a gain or loss when a pension obligation is terminated.

Which of the following items should be included in pension expense calculated by an employer who sponsors a defined-benefit pension plan for its employees?

Not fair value of plan assets, yes amortization of prior service cost

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?

Product warranty liabilities

Which of the following statements is true about post retirement health care benefits?

The beneficiary is the retiree, spouse, and other dependents.

Accounting for income taxes can result in the reporting of deferred taxes as

a concurrent liability

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates?

accrual for product warranty liability and subscriptions received in advance

The main purpose of the Pension Benefit Guaranty Corporation is to

administer terminated plans and to impose liens on the employer's assets for certain unfunded pension liabilities

Differing measures of the pension obligation can be based on

all of these answers

In accounting for a defined-benefit pension plan

an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised.

Deferred taxes should be presented on the balance sheet

as a noncurrent amount

One component of pension expense is actual return on plan assets. Plan assets include

assets that a company holds to earn a reasonable return, generally at minimum risk

The fair value of pension plan assets is used to determine the corridor and to calculate the expected return on plan assets

both corridor and expected return on plan assets

Whenever a defined-benefit plan is amended and credit is given to employees for years of service provided before the date of amendment

both the accumulated benefit obligation and the projected benefit obligation are usually greater than before

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

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? I. A revenue is deferred for financial reporting purposes but not for tax purposes. II. A revenue is deferred for tax purposes but not for financial reporting purposes. III. An expense is deferred for financial reporting purposes but not for tax purposes. IV. 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 II and III only

recognizing a valuation allowance for a deferred tax asset requires that a company

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

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 tax liability. a. I, II, and III. b. I and III only. c. II only. d. I only.

d. I only

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.

d. all of these

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. that it may be helpful in setting government policy. d. all of these.

d. all of these

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. all of these choices must be disclosed

Vested benefits a. usually require a certain minimum number of years of service. b. are those that the employee is entitled to receive even if fired. c. are not contingent upon additional service under the plan. d. are defined by all of these.

d. are defined by all of these answers.

In all pension plans, the accounting problems include all the following except a. measuring the amount of pension obligation. b. disclosing the status and effects of the plan in the financial statements. c. allocating the cost of the plan to the proper periods. d. determining the level of individual premiums.

d. determining the level of individual premiums

The actuarial gains or losses that result from changes in the projected benefit obligation are called Asset Liability Gains & Losses Gains & Losses a. Yes Yes b. No No c. Yes No d. No Yes

d. no yes

In a defined-benefit plan, a formula is used that

defines the benefits that the employee will receive at the time of retirement.

taxable income of a corporation

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

The actual return on plan assets

includes interest, dividends, and changes in the fair value of the fund assets after contribution and benefit.

In determining the present value of the prospective benefits (often referred to as the projected benefit obligation), which of the following are not considered by the actuary?

insurance provisions of the plan

Which of the following will not result in a temporary difference?

interest received on municipal obligations

The projected benefit obligation is the measure of pension obligation that

is required to be used for reporting the service cost component of pension expense

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when

it is more likely than not that the tax position will be sustained upon audit

In a defined-benefit plan, the process of funding refers to

making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims

all of the following are procedures for the computation of deferred income taxes except to

measure the total deferred tax liability for deductible temporary differences

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in

net future taxable amounts

When a company adopts a pension plan, prior service costs should be charged to

other comprehensive income (PSC)

In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as

pension asset/liability

The relationship between the amount funded and the amount reported for pension expense is as follows:

pension expense may be greater than, equal to, or less than the amount funded

A pension asset is reported when

pension plan assets at fair value exceed the projected benefit obligation.

Companies are permitted to offset any balances in income taxes payable against

related income tax refund receivable or prepaid income taxes balances

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be

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

In a defined-contribution plan, a formula is used that

requires an employer to contribute a certain sum each period based on the formula

According to the FASB, recognition of a liability is required when the projected benefit obligation exceeds the fair value of plan assets. Conversely, when the fair value of plan assets exceeds the projected benefit obligation, the Board

requires recognition of an asset

The computation of pension expense includes all of the following except

service cost component measured using current salary levels

Which of the following is not considered a permanent difference?

stock-based compensation expense

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?

temporary asset

A major distinction between temporary and permanent differences is

temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse

Which of the following disclosures of pension plan information would not normally be required?

the amount of prior service cost changed or credited in previous years

Which of the following is not a characteristic of a defined-contribution pension plan?

the benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan.

the deferred tax expense is the

the change in the balance of deferred tax liability minus the change in the balance of deferred tax asset

Recognition of tax benefits in the loss year due to a loss carryforward requires

the establishment of a deferred tax asset

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if

the future tax rates have been enacted into law

The accumulated benefit obligation measures

the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.

A pension liability is reported when

the projected benefit obligation exceeds the fair value of pension plan assets.

In computing the service cost component of pension expense, the FASB concluded that

the projected benefit obligation using future compensation levels provides a realistic measure of present pension obligation and expense

Prior service cost is amortized on a

years-of-service method or on a straight-line basis over the average remaining service life of active employees.

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

Unruh will record a decrease in deferred tax liability in 2018.

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

after it is reported in financial income and before it is reported in financial income

taxable income of a corporation differs from pretax financial income because of

permanent and temporary differences

Alternative methods exist for the measurement of the pension obligation (liability). Which measure requires the use of future salaries in its computation?

projected benefit obligation

A corporation has a defined-benefit plan. A pension liability will result at the end of the year if the

projected benefit obligation exceeds the fair value of the plan assets

A pension fund gain or loss that is caused by a plant closing should be

recognized immediately as a gain or loss on the plant closing

Gains and losses that relate to the computation of pension expense should be

recorded currently and in the future by applying the corridor method which provides the amount to be amortized

When a company amends a pension plan, for accounting purposes, prior service costs should be

recorded in other comprehensive income (PSC)

The interest on the projected benefit obligation component of pension expense

reflects the rates at which pension benefits could be effectively settled

A company uses the equity method to account for an investment for financial reporting purposes. This would result in what type of difference and in what type of deferred income tax?

temporary liability