Ch19 - MCQ

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates? (1-4)

1 and 2 only.1. Accrual for product warranty liability. 2. Subscriptions received in advance.

Uncertain tax positions...(1-4)

1. Only. 1. Uncertain tax positions are positions for which the tax authorities may disallow a deduction in whole

Temporary Differences: Expenses or losses are deductible AFTER they are recognized in financial income. Ex. Warranty Liabilities, Litigation accruals, Bad Debt Expense, Stock Based Comp., Unrealized Holding Losses...

A LIABILITY --or contra asset-- may be recognized for expenses or losses that will result in DEDUCTIBLE amounts in future years when the liability is settled.

Temporary Differences: Revenues or gains are taxable BEFORE they are recognized in financial income. Ex. Advance Subscriptions, Rental Receipts, Sales/Leasebacks, Prepaid Contracts...

A LIABILITY may be recognized for an advance payment for goods or services to be provided in future years. For tax purposes, the advance payment is included in taxable income upon the receipt of cash. Future sacrifices to provide goods or services (or future refunds to those who cancel their orders) that settle the liability will result in DEDUCTIBLE amounts in future years

Accounting for income taxes can result in the reporting of deferred taxes as any of the following except:

A contra-asset account.

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 fine resulting from violations of OSHA regulations.

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

ALL of these will result in a temporary difference: a. Product warranty liabilities b. Advance rental receipts c. Installment sales

Major reasons for disclosure of deferred income tax information is (are):

All of these answer choices are correct. a. better assessment of quality of earnings. b. better predictions of future cash flows. c. predicting future cash flows for operating loss carryforwards.

Temporary Differences: Revenues or gains are taxable AFTER they are recognized in financial income. Ex: Accrual Sales, Equity/Cost Method Investments, Gain on involuntary conversion of non-monetary assets, Unrealized Holding Gains...

An ASSET-- accounts receivable or investment-- may be recognized for revenues or gains that will result in TAXABLE amounts in future years when the asset is recovered.

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.

A temporary difference arises when a revenue item is reported (in financial income) for tax purposes in a period. (After and/or Before)

BOTH: AFTER - Yes & BEFORE - Yes

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in: Future Taxable Amounts? Future Deductible Amounts?

BOTH: Future Taxable Amounts - Yes Future Deductible Amounts -Yes

Taxable income of a corporation differs from pretax financial income because of: Permanent / Temporary Differences

BOTH: Permanent Differences - Yes, Temporary Differences - Yes

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.

Taxable income of a corporation:

Differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination.

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.

Deferred taxes should be presented on the balance sheet:

In two amounts: one for the net current amount and one for the net noncurrent amount.

The deferred tax expense is the

Increase in balance of deferred tax liability minus-- the increase in balance of deferred tax asset.

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.

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?(1-4)

Items 2 and 3 only. 2. A revenue is deferred for tax purposes but not for financial reporting purposes. 3. An expense is deferred for financial reporting purposes but not for tax purposes.

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

Measure the total deferred tax asset for deductible temporary differences and operating loss carrybacks.

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 is not considered a permanent difference?

Stock-based compensation expense.

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: Type of Difference? Deferred Tax?

Temporary /Liability

A major distinction between temporary and permanent differences is:

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

A company records an unrealized LOSS on Short-Term SECURITIES. This would result in what type of difference and in what type of deferred income tax? Type of Difference?Deferred Tax?

Temporary/ Asset

Expenses or losses are deductible BEFORE they are recognized in financial income. Ex. Depreciable Property, Deductible Pension, Prepaid Expenses...

The cost of an ASSET may have been deducted for tax purposes faster than it was expensed for financial reporting purposes. Amounts received upon future recovery of the amount of the asset for financial reporting (through use or sale) will exceed the remaining tax basis of the asset and thereby result in TAXABLE amounts in future years.

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.

Tanner, Inc. incurred a financial and taxable loss for 2015. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2015 financial statements?

The refund claimed should be shown as a reduction of the loss in 2015.

At the December 31, 2014 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2015, a future taxable amount will occur and:

Unruh will record a DECREASE in a deferred tax liability in 2015.

An example of a permanent difference is

all of these answers are correct: 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.

A deferred tax liability is classified on the balance sheet as either a current or a non-current liability. The current amount of a deferred tax liability should generally be:

based on the classification of the related asset or liability for financial reporting purposes.

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.

Deferred tax amounts that are related to specific assets or liabilities should be classified as current or non-current based on:

the classification of the related asset or liability.